The entertainment and media industry has constantly evolved due to shifting consumer consumption patterns, technological progress, and revolutionary business methods. The industry continues to make a significant financial contribution to the economy, with a market value of $717 billion, accounting for 6.9% of the United States’ total GDP.
The pandemic-led behavioral changes resulted in an upsurge in online entertainment, including streaming video services, gaming, and user-generated content. According to a report by Allied Market Research, the global online entertainment market is expected to grow at a CAGR of 20.8% to reach $652.5 billion by 2027.
However, inflation continues to take a toll on consumers’ discretionary expenditures on entertainment. With inflation hovering around its highest in more than 40 years, an L.E.K Consulting survey of over 2,500 Americans across generations and income levels in October found a significant impact on leisure spending. About 81% of respondents said inflation impacted their leisure and entertainment spending.
Given the industry's long-term growth prospects, adding fundamentally strong entertainment stock AMC Networks (AMCX) to your watchlist could be wise. However, given the near-term macroeconomic headwinds, fundamentally weak stocks such as The Walt Disney Company (DIS) and Warner Bros. Discovery, Inc. (WBD) could be best avoided now.
Stock to Buy:
AMC Networks Inc. (AMCX)
AMCX is an entertainment corporation that owns and operates a broad range of video entertainment products distributed to the public through social media and linear networks. The company operates through two segments, Domestic Operations and International and Other.
On November 3, AMCX announced an expanded partnership with Roku Inc (ROKU) to highlight AMCX's top-notch content and targeted streaming services throughout The Roku Channel's vast and growing ecosystem.
This alliance will aid AMCX in achieving its strategic objective of distributing and windowing its premium content across a coordinated ecosystem that will comprise AMCX's networks, streaming services, and well-known partner platforms.
On September 29, AMCX and Orange Comet, Inc., a premium Web3 entertainment business, announced the expansion of their exclusive partnership with the debut of NFTs and virtual worlds for AMCX's next big franchise, The Immortal Universe of Anne Rice. They also reported an expansion of scope for their popular The Walking Dead NFT Collection.
This collaboration will enable AMCX to grow further in the entertainment business, demonstrating its outstanding capacity to create technologically advanced interactive fan experiences.
For nine months ended September 30, 2022, AMCX’s operating income increased 12.3% year-over-year to $478.56 million, while its interest income grew 12.3% year-over-year to $8.55 million. Also, net income attributable to AMCX stockholders came in at $272.28 million, a 16.6% increase from the previous year’s quarter, and net income per share attributable to AMCX stockholders grew 15.6% year-over-year to $6.23.
Analysts expect AMCX’s revenue for the fiscal 2022 fourth quarter ending December 2022 to grow 16.6% year-over-year to $936.80 million, while the company’s EPS for the ongoing quarter is expected to increase 140.5% from the year-ago value to $1.30. The stock declined 6.6% intraday to close its last trading session at $15.67.
AMCX’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each weighted to an optimal degree.
The stock has a B grade for Value and Quality. Within the Entertainment - Media Producers industry, it has topped among 16 stocks.
Click here to see the additional POWR ratings of AMCX for Growth, Momentum, Stability, and Sentiment.
Stocks to Avoid:
The Walt Disney Company (DIS)
DIS is a multinational entertainment giant. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products. The company also publishes comic books, operates television broadcast networks, and creates and distributes episodic film and television material.
DIS has plummeted, extending a lengthy selloff that has brought the company's shares to a more than two-year low. Following a rather underwhelming opening weekend for the company's Avatar: The Way of Water, one of the most expensive films in Hollywood history, its shares fell 4.8% to $85.78, closing the day at their lowest level since March 2020.
The release marked DIS's most recent setback. The company has lost 45% of its market share in 2022, putting it on pace to experience its greatest yearly loss in decades.
For the fourth quarter of fiscal 2022 ended October 1, 2022, DIS’ revenue from Disney Media and Entertainment Distribution segment declined 2.7% year-over-year to $12.72 million, while its operating income from the same segment worsened by 91.2% to $83 million from the year-ago value.
In addition, the company’s EPS, excluding certain items, came in at $0.30, an 18.9% decline year-over-year, while its free cash flow dropped 9.6% year-over-year to $1.37 billion.
For the fiscal 2023 first quarter ending December 2022, analysts expect DIS’ EPS to decline 24.9% year-over-year to $0.80. The stock has slumped 13.3% over the past month and 45.3% year-to-date.
DIS’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
The stock has a D grade for Value, Momentum, and Quality. Within the Entertainment - Media Producers industry, it is ranked #12 of 16 stocks.
Beyond what we stated above, we also have DIS ratings for Stability, Sentiment, and Growth. Get all DIS ratings here.
Warner Bros. Discovery, Inc. (WBD)
The entertainment giant WBD provides audiences with a diverse and comprehensive portfolio of content, brands, and franchises in television, cinema, streaming, and gaming in almost 220 countries and territories and 50 languages.
WBD continues to struggle as it expects to incur a billion more in restructuring expenses than it had estimated two months ago. Pretax restructuring expenses might total up to $5.3 billion through 2024, above the $4.3 billion estimate made by WBD in late October.
The business also warned about costs above and beyond the $5.3 billion estimate. Significant layoffs have occurred since Discovery and WarnerMedia merged earlier this year, including key executives at important divisions including HBO, Warner Bros., CNN, and the Turner and Discovery cable networks.
Moreover, a handful of well-known projects and programs have been killed off or shelved, including CNN's streaming service CNN+ and the "Batgirl" movie, which was almost finished.
For the third quarter of fiscal 2022 ended September 30, WBD’s costs and expenses increased 325.8% year-over-year to $12.01 billion. The company reported an operating loss of $2.19 billion, compared to an operating income of $329 million in the prior-year quarter.
Also, the net loss available to WBD came in at $2.31 billion and $0.95 per share, compared to a net income of $156 million and $0.24 per share a year ago.
Analysts expect WBD’s loss per share of $0.22 for the fiscal 2022 fourth quarter ending December 2022. Moreover, the company is expected to report a loss per share of $1.68 for the current fiscal year. The stock has plunged 13.5% over the past month and 63.5% year-to-date to close the last trading session at $9.25.
WBD’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Sentiment and a D for Growth and Quality. Within the same industry, WBD is ranked last among 16 stocks.
Click here to see the additional rating of WBD for Stability, Value, and Momentum.
DIS shares were trading at $86.55 per share on Tuesday afternoon, up $0.77 (+0.90%). Year-to-date, DIS has declined -44.12%, versus a -18.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
1 Entertainment Stock to Watch Right Now and 2 to Avoid StockNews.com
