Despite economic uncertainties, the entertainment industry thrives due to increased tech adoption and improved user experiences. Moreover, the long-term potential is bolstered by factors like widespread internet use, new offerings, and emerging technologies.
To that end, adding fundamentally strong entertainment stock Sony Group Corporation (SONY) to one’s watchlist could be wise, while Warner Bros. Discovery, Inc. (WBD) might be avoided.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the entertainment industry.
Hollywood foresees challenges in 2024 at the domestic box office due to delays in major films until 2025 amid writers’ and actors’ strikes. Projected revenue for 2024 is $7.5 billion to $8 billion, potentially falling short of the expected $8.8 billion to $8.9 billion this year, signaling a lack of event products and a significant decline in wide releases compared to the previous year.
However, the box office sales in 2023 surpassed last year's figures by $1 billion, reaching an impressive $5.8 billion by July 30. Moreover, according to a Markets N Research report, the global movie theatre market is projected to grow at a 4.5% CAGR, reaching $92.40 billion by 2030.
The industry also adapts to consumer preferences, adopting digital tools and technology for creativity, flexibility, and cost-effective offerings. The global media and entertainment market is forecasted to reach $2.44 trillion by 2028, growing at a CAGR of 6.4% from 2022 to 2028.
Moreover, technological advances are transforming film production, with growing interest in Augmented Reality (AR) and Virtual Reality (VR) content. The generative AI market in media and entertainment is projected to reach $12.08 billion by 2032, growing at a CAGR of 26.7%.
Considering these trends, let’s take a look at the fundamentals of the two stocks from the Entertainment - Media Producers industry.
Stock to Sell:
Warner Bros. Discovery, Inc. (WBD)
WBD operates as a media and entertainment company worldwide. It operates through three segments: Studios, Network, and DTC. The company offers film and TV production, streaming services, international TV markets, premium pay-TV, and a diverse content portfolio under brands like Warner Bros., DC, HBO, and Discovery Channel.
In terms of the trailing-12-month EBITDA margin, WBD’s 16.33% is 13.5% lower than the 18.88% industry average. Likewise, its 3.36% trailing-12-month Capex/Sales is 17.8% lower than the industry average of 4.09%. Furthermore, the stock’s 39.27% trailing-12-month gross profit margin is 20.1% lower than the industry average of 49.13%.
For the third quarter that ended September 30, 2023, WBD’s revenues came in at $9.98 billion. Its operating income came in at $97 million, compared to an operating loss of $2.19 billion in the year-ago quarter.
For the same quarter, the company’s net loss available to WBD and net loss per share allocated to WBD series A common stockholders narrowed 81.9% and 82.1% over the prior-year quarter to come in at $417 million and $0.17, respectively.
Analysts expect WBD’s revenue for the quarter ending December 31, 2024, to decrease 5.1% year-over-year to $10.44 billion, while its EPS for the same quarter is expected to be negative. It failed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has declined 9.7% to close the last trading session at $12.26.
WBD’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a D grade for Momentum, Stability, Sentiment, and Quality. Within the Entertainment - Media Producers industry, it is ranked last out of 11 stocks. In total, we rate WBD on eight different levels. Beyond what we stated above, we also have given WBD grades for Growth and Value. Get all WBD ratings here.
Stock to Hold:
Sony Group Corporation (SONY)
Headquartered in Tokyo, Japan, SONY designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets worldwide. The company distributes and produces software, digital networks, gaming consoles, music, animation, movies, miniseries, and other television programs.
In terms of the trailing-12-month EBIT margin, SONY’s 7.73% is 3% higher than the 7.50% industry average. Likewise, its 5.54% trailing-12-month Capex/Sales is 82.3% higher than the industry average of 3.04%. On the other hand, its 24.27% trailing-12-month gross profit margin is 31.6% lower than the industry average of 35.47%.
SONY’s sales for the second quarter ended on September 30, 2023, increased 7.7% year-over-year to ¥2.83 trillion ($19.90 billion). However, its operating income declined 28.8% year-over-year to ¥263 billion ($1.85 billion). The company’s net income attributable to SONY declined 29% year-over-year to ¥200.10 billion ($1.41 billion). Also, net income per share decreased 28.6% year-over-year to ¥161.74 per share.
For the quarter ending March 31, 2024, SONY’s EPS is expected to increase 24.2% year-over-year to $0.95. Its revenue for the quarter ending December 31, 2023, is expected to decline 8.1% year-over-year to $24.36 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 21.5% year-to-date to close the last trading session at $92.69.
SONY’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Value, Stability, Sentiment, and Quality. It is ranked #5 in the Entertainment - Media Producers industry. Click here to see SONY’s ratings for Growth and Momentum.
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SONY shares were trading at $91.70 per share on Monday morning, down $0.99 (-1.07%). Year-to-date, SONY has gained 20.80%, versus a 24.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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