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3 Media Stocks to Watch From a Challenging Industry
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The Zacks Media Conglomerates industry has been suffering from a decline in ratings for broadcast television, as well as reduced demand for home entertainment sales of theatrical content. Sluggish spending by advertisers due to raging inflation and a higher interest rate has been another concern. Nevertheless, the industry participants are benefiting from the change in consumer preference for over-the-top (OTT) content. Companies like Disney (DIS - Free Report) , Sphere Entertainment (SPHR - Free Report) and Reservoir Media (RSVR - Free Report) have been investing heavily to develop original and fresh content, including music and shows, to attract and retain subscribers, particularly Gen Z and millennials. The availability of a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings to attract consumers, is aiding industry players’ prospects.
Industry Description
The Zacks Media Conglomerates industry primarily comprises companies that develop and distribute shows, movies, music, educational content and digital learning services. The companies offer entertainment, travel and consumer products. The media companies are riding on shifting consumer preference for OTT content, be it subscription-based video on demand or advertising supported. Advertising is a significant revenue source for media industry participants. Metaverse is a budding market for media companies. Moreover, subscription prices have room for growth due to the expanding subscriber base. However, media industry participants are suffering from the industry-wide decline in ratings for broadcast television, reduced demand for home entertainment sales of theatrical content and increasing cord-cutting.
3 Trends Shaping the Future of the Media Industry
Original Content Driving Growth: Media companies’ ability to generate ad revenues outside of traditional TV platforms, such as websites and any digitally-consumed platform, provides increased scope for target-based advertising. The growing consumer preference for subscription services instead of linear pay-TV and rental or outright purchase has compelled the industry players to alter their business models. Media companies are innovating original content to attract subscribers.
High-Speed Internet Demand Acting as the Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided media industry participants. Improving Internet speed is fueling the demand for high-quality videos and the trend of binge-watching. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth.
Cord-Cutting and Matured PayTV Industry Hurting Prospects: The media television industry is witnessing the rapid evolution of distribution platforms and embracing new players and advanced technologies. The declining profitability of residential video services due to rising programming costs and retransmission fees has made survival difficult for traditional companies. Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it tricky for traditional media television companies to maintain their viewer bases.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Media Conglomerates industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #212, which places it in the bottom 15% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector, S&P 500
The Zacks Media Conglomerates industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry has declined 16.1% over the above-mentioned period against the broader sector’s growth of 13.4%. The S&P 500 has returned 17% during the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 4.95X compared with the S&P 500’s 12.8X and the sector’s 7.77X.
Over the past year, the industry has traded as high as 6.56X and as low as 4.86X, with a median of 5.72X, as the charts below show.
Over the next decade, Disney plans to double its capital expenditure on theme parks to nearly $60 billion. A strong lineup of movies bodes well for the Media and Entertainment Distribution segment. Its streaming services have been gaining accolades, driven by a strong content portfolio.
Disney shares have declined 6% in the year-to-date period. The Zacks Consensus Estimate for DIS’ fiscal 2023 earnings has increased by 0.8% to $3.71 per share in the past 30 days.
Price and Consensus: DIS
Reservoir Media: This New York-based leading independent music company currently has a Zacks Rank #3.
Reservoir Media benefits from its strong content portfolio. Its publishing catalog includes historic compositions written and performed by greats like Joni Mitchell, The Isley Brothers, Billy Strayhorn, Hoagy Carmichael and John Denver.
The company’s shares have returned 0.0% in the year-to-date period. The Zacks Consensus Estimate for RSVR's fiscal 2024 earnings has been unchanged at 9 cents per share in the past 30 days.
Price and Consensus: RSVR
Sphere Entertainment: Another Zacks Rank #3 stock, Sphere owns the under-construction Las Vegas Sphere and recently announced the launch of Sphere Studios.
Sphere shares have declined 8.2% year to date. The consensus mark for SPHR's fiscal 2024 loss has been steady at $3.75 per share in the past 30 days.
Price and Consensus: SPHR
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3 Media Stocks to Watch From a Challenging Industry
The Zacks Media Conglomerates industry has been suffering from a decline in ratings for broadcast television, as well as reduced demand for home entertainment sales of theatrical content. Sluggish spending by advertisers due to raging inflation and a higher interest rate has been another concern. Nevertheless, the industry participants are benefiting from the change in consumer preference for over-the-top (OTT) content. Companies like Disney (DIS - Free Report) , Sphere Entertainment (SPHR - Free Report) and Reservoir Media (RSVR - Free Report) have been investing heavily to develop original and fresh content, including music and shows, to attract and retain subscribers, particularly Gen Z and millennials. The availability of a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings to attract consumers, is aiding industry players’ prospects.
Industry Description
The Zacks Media Conglomerates industry primarily comprises companies that develop and distribute shows, movies, music, educational content and digital learning services. The companies offer entertainment, travel and consumer products. The media companies are riding on shifting consumer preference for OTT content, be it subscription-based video on demand or advertising supported. Advertising is a significant revenue source for media industry participants. Metaverse is a budding market for media companies. Moreover, subscription prices have room for growth due to the expanding subscriber base. However, media industry participants are suffering from the industry-wide decline in ratings for broadcast television, reduced demand for home entertainment sales of theatrical content and increasing cord-cutting.
3 Trends Shaping the Future of the Media Industry
Original Content Driving Growth: Media companies’ ability to generate ad revenues outside of traditional TV platforms, such as websites and any digitally-consumed platform, provides increased scope for target-based advertising. The growing consumer preference for subscription services instead of linear pay-TV and rental or outright purchase has compelled the industry players to alter their business models. Media companies are innovating original content to attract subscribers.
High-Speed Internet Demand Acting as the Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided media industry participants. Improving Internet speed is fueling the demand for high-quality videos and the trend of binge-watching. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth.
Cord-Cutting and Matured PayTV Industry Hurting Prospects: The media television industry is witnessing the rapid evolution of distribution platforms and embracing new players and advanced technologies. The declining profitability of residential video services due to rising programming costs and retransmission fees has made survival difficult for traditional companies. Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it tricky for traditional media television companies to maintain their viewer bases.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Media Conglomerates industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #212, which places it in the bottom 15% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector, S&P 500
The Zacks Media Conglomerates industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry has declined 16.1% over the above-mentioned period against the broader sector’s growth of 13.4%. The S&P 500 has returned 17% during the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 4.95X compared with the S&P 500’s 12.8X and the sector’s 7.77X.
Over the past year, the industry has traded as high as 6.56X and as low as 4.86X, with a median of 5.72X, as the charts below show.
EV/EBITDA Ratio (TTM)
3 Media Stocks to Watch
Disney: This Zacks Rank #3 (Hold) company is benefiting from rebounding Parks, Experiences and Products businesses. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the next decade, Disney plans to double its capital expenditure on theme parks to nearly $60 billion. A strong lineup of movies bodes well for the Media and Entertainment Distribution segment. Its streaming services have been gaining accolades, driven by a strong content portfolio.
Disney shares have declined 6% in the year-to-date period. The Zacks Consensus Estimate for DIS’ fiscal 2023 earnings has increased by 0.8% to $3.71 per share in the past 30 days.
Price and Consensus: DIS
Reservoir Media: This New York-based leading independent music company currently has a Zacks Rank #3.
Reservoir Media benefits from its strong content portfolio. Its publishing catalog includes historic compositions written and performed by greats like Joni Mitchell, The Isley Brothers, Billy Strayhorn, Hoagy Carmichael and John Denver.
The company’s shares have returned 0.0% in the year-to-date period. The Zacks Consensus Estimate for RSVR's fiscal 2024 earnings has been unchanged at 9 cents per share in the past 30 days.
Price and Consensus: RSVR
Sphere Entertainment: Another Zacks Rank #3 stock, Sphere owns the under-construction Las Vegas Sphere and recently announced the launch of Sphere Studios.
Sphere shares have declined 8.2% year to date. The consensus mark for SPHR's fiscal 2024 loss has been steady at $3.75 per share in the past 30 days.
Price and Consensus: SPHR
