Amid fears of an economic slowdown, consumers' discretionary spending faces a considerable squeeze. Nevertheless, the entertainment industry is well-positioned to weather these challenges, bolstered by increased consumer demand and the integration of advanced technologies.
Given this backdrop, investing in stocks favored by institutional investors could prove rewarding. To that end, Sony Group Corporation (SONY), News Corporation (NWSA), and Vivendi SE (VIVHY) could be worth adding to your watchlist now.
During the pandemic, media companies experienced a surge in subscribers and stock prices, pouring billions into fresh content creation. However, the industry’s growth has stagnated, leading to widespread budget cuts and layoffs.
The sticky inflation and fears of an economic slump have significantly impacted consumers' discretionary spending habits, directing them more toward essentials. Within the entertainment sphere, macroeconomic adversities since last year have escalated production costs, thwarted ad revenue, and wiped out hundreds of billions in value from entertainment and media firms.
Coupled with dwindling ad income and losing profit in streaming services, the media and entertainment industry is also contending with Hollywood strikes. This compelled companies to withdraw big-budget movies from the 2023 release calendar, jeopardizing theaters, frustrating fans, and ultimately damaging the industry's well-being.
Despite the challenges, the industry has evolved significantly and is predicted to grow because of persistent demand. The entertainment industry is continually adapting to meet dynamic consumer needs.
Moreover, incorporating advanced digital tools and technology is expected to usher in a new era of creativity, flexibility, and cost-optimized offerings tailored to consumer requirements. For instance, with the expansion of usage and intricacy of generative AI, the industry is poised to be at the forefront. Generative AI in the media and entertainment market is expected to reach $12.08 billion by 2032, growing at a CAGR of 26.7%.
Furthermore, the global entertainment industry market is projected to reach $49.56 billion by 2032, growing at a CAGR of 11%.
Therefore, following smart money and watching entertainment stocks SONY, NWSA, and VIVHY could be wise.
Sony Group Corporation (SONY)
Headquartered in Tokyo, Japan, SONY designs, produces, and sells electronic appliances internationally for the consumer, professional, and industrial markets. The company develops and distributes music, game applications, live-action, and animated motion pictures, operates television networks, direct-to-consumer streaming services, visual effects, and animation units, and manages a studio facility. Institutions hold roughly 7.9% of SONY shares. Of the 656 institutional holders, 305 have increased their positions in the stock. Moreover, 79 institutions have taken new positions in the stock.
SONY has lodged a patent that details a system for incorporating scents into entertainment media. This inventive approach utilizes visual and audio cues to trigger the release of targeted fragrances, thereby deepening the immersive experience for users.
Although this is not the industry's initial endeavor towards using aromas as part of entertainment, earlier efforts failed to achieve widespread adoption. However, if SONY effectively implements it, it could benefit from such an innovative feature.
SONY’s trailing-12-month net income margin of 8.12% is 94.4% lower than the 4.18% industry average, while its trailing-12-month levered FCF margin of 9.78% is 115.64% higher than the 4.53% industry average. Also, its trailing-12-month cash from operations of $2.37 billion is significantly higher than the industry average of $211.71 million.
SONY’s total sales and financial services revenue increased 35.3% year-over-year to ¥3.06 trillion ($21.78 billion) in the fiscal fourth quarter that ended March 31, 2023, with Entertainment, Technology & Services segment revenue at ¥493.85 billion ($3.51 billion). Its operating income stood at ¥128.46 billion ($913.81 million).
Its net income and net income per share attributable to SONY’s stockholders increased 14.3% and 16.4% year-over-year to ¥129.14 billion ($918.61 million) and ¥103.53, respectively. Also, as of March 31, 2023, its total current assets increased 4.4% year-over-year to ¥5.78 trillion ($41.09 billion).
SONY’s revenue is expected to increase significantly year-over-year to $84.04 billion for the fiscal year ending March 2024, while its EPS is expected to come to $5.41 in the same period. Moreover, it surpassed the consensus EPS estimates in three of the trailing four quarters, which is promising.
Over the past year, the stock has gained 4.8% to close the last trading session at $90.44. The stock gained 18.6% year-to-date.
SONY’s POWR Ratings reflect its outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SONY has a B grade for Sentiment. It is ranked #3 out of 13 stocks in the Entertainment – Media Producers industry.
Click here for the additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality for SONY.
News Corporation (NWSA)
NWSA is a media and information services company that creates and distributes authoritative and engaging content and other products and services for consumers and businesses worldwide. It has six operational segments: Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media, and Other. Roughly 100.6% of NWSA shares are held by institutions. Of the 446 institutions owning NWSA shares, 186 have recently increased their positions in the stock.
NWSA’s trailing-12-month asset turnover ratio of 0.59x is 20.7% higher than the 0.49x industry average. Also, its trailing-12-month cash from operations of $994 million is 332.7% higher than the industry average of $229.74 million.
NWSA’s net revenue stood at $2.45 billion for the fiscal third quarter that ended March 31, 2023, with Subscription Video Services revenue at $477 million. Its total segment EBITDA came at $320 million for the same quarter. As of March 31, 2023, its total subscribers grew 3.4% year-over-year to 4.66 million, primarily due to the growth in streaming subscribers.
Its adjusted net income attributable to shareholders and adjusted EPS amounted to $53 million and $0.09, respectively. As of March 31, 2023, its total current liabilities stood at $3.20 billion, compared to $3.52 billion as of June 30, 2022.
NWSA’s revenue and EPS are expected to increase 1.1% and 41.7% year-over-year to $2.50 billion and $0.17, respectively, for the fiscal first quarter ending September 2023.
Over the past year, the stock has gained 18.8% to close the last trading session at $20.21. The stock gained 11% year-to-date.
NWSA’s outlook is reflected in its POWR Ratings. The stock has a B grade for Sentiment. Within the same industry, it is ranked first.
Beyond what we’ve stated above, we have also given NWSA grades for Growth, Value, Momentum, Stability, and Quality. Get all the NWSA ratings here.
Vivendi SE (VIVHY)
Headquartered in Paris, France, VIVHY operates as an entertainment, media, and communication company in France, the rest of Europe, the Americas, Asia/Oceania, and Africa. It operates through Canal+ Group, Havas, Prisma Media, Gameloft, Vivendi Village, New Initiatives, Generosity and Solidarity, and Corporate segments. Institutions own 15,031 shares of VIVHY, with an institution taking a new position of 15,009 shares recently.
On April 25, 2023, the ordinary dividend of €0.25 per share was paid to the shareholders from April 27, in respect of fiscal year 2022, corresponding to a total amount distributed of €256 million ($283.32 million). It pays a $0.28 per share dividend annually, translating to a 3.07% yield on the current share price. Its four-year average dividend yield is 47.95%.
In addition, in the first half of 2023, VIVHY’s share buybacks totaled €29 million ($32.09 million), or 3 million shares, allocated for employee shareholding transactions. After the cancellation of 78.6 million shares in 2023, VIVHY currently holds 5.3 million of its shares (0.51% of its share capital).
In June, VIVHY received approval from the European Commission to proceed with its proposed transaction with Lagardère. Completing the acquisition would lead to VIVHY’s employee count rising to 66,000, compared to 38,000 at the end of December 2022.
It would also give the company a more substantial presence in France, Spain, the U.K., and the U.S. Its annual revenues are projected to reach approximately €17 billion ($18.81 billion), compared to around €10 billion ($11.07 billion) today.
VIVHY’s trailing-12-month CAPEX/Sales of 4.09% is 1.7% higher than the 4.02% industry average. Also, its trailing-12-month cash from operations of $545.61 million is 137.5% higher than the industry average of $229.74 million.
For the six months that ended June 30, 2023, VIVHY’s revenues increased 3.7% year-over-year to €4.70 billion ($5.20 billion). Its adjusted net income and net income per share stood at €324 million ($358.57 million) and €0.32, up 458.6% and 433.3% year-over-year.
Moreover, as of June 30, 2023, VIVHY’s current liabilities stood at €7.97 billion ($8.82 billion), compared to €8.96 billion ($9.92 billion) as of December 31, 2022.
VIVHY’s revenue and EPS are expected to increase 6.5% and 51.1% year-over-year to $10.78 billion and $0.77, respectively, for the fiscal year ending December 2023. Moreover, it surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained marginally intraday to close the last trading session at $9. Over the past five days, the stock gained 1.2%.
VIVHY’s outlook is reflected in its POWR Ratings. The stock has a B grade for Sentiment. Within the Entertainment – Media Producers industry, it is ranked #2.
To see the additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality for VIVHY, click here.
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SONY shares fell $0.32 (-0.35%) in premarket trading Tuesday. Year-to-date, SONY has gained 18.43%, versus a 17.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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