Sphere Entertainment Lands Upgrade on Potential Economic Resilience

Posted on: August 7, 2024, 05:17h. 

Last updated on: August 8, 2024, 10:28h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Sphere Entertainment (NYSE: SPHR) jumped 2.82% on Wednesday after the stock landed an upgrade from Seaport Research.

Sphere Entertainment
The Sphere illuminated in Las Vegas on July 4, 2023. Sphere Entertainment was upgraded by Seaport Research on Wednesday. (Image: YouTube)

In a note to clients, the research firm upgraded Sphere to “buy” from “neutral” with a price target of $48. That implies upside of almost 20% from Wednesday’s close. Seaport noted that entertainment and sports companies, of which Sphere is one, could be somewhat sturdy in a softening economy because they’re not heavily dependent on advertising revenue, which could be pinched in a recession.

We think experience economy companies such as Sphere Entertainment Co. should retain sufficient consumer demand by those who are not as economically-sensitive…While our SPHR downgrade this summer was partially predicated upon the pending low seasonality of Las Vegas visitation and the waning capacity utilization of The Sphere Experience after six months of multiple shows per day, we think there are potential catalysts/company disclosures on the horizon that could revive interest in the shares,” according to Seaport.

Sphere has some advertising exposure due to ads and suite license fees run on the exosphere of the Las Vegas venue, but the bulk of the property’s sales are driven by concerts and other experiential fare.

Hollywood Could Be Catalyst for Sphere Entertainment

In its relatively brief history in Las Vegas, Sphere has shown a knack for luring big acts such as U2 and The Eagles, but those aren’t everyday shows, meaning the company needs to find other avenues for luring visitors to the venue.

The Sphere Experience featuring “Postcard from Earth,” which launched last October, fits that bill and Seaport believes the company could lean into Hollywood to bring more visitors to the venue. Analysts at the firm envision a scenario in which Sphere pays studios upfront franchise fees to remaster classic films at the Las Vegas property.

“Extending the logic from that strategic hire, now there is news that the Sphere may remaster Warner Bros.’ The Wizard of Oz at a cost of $80 million as a potential new Sphere Experience film. We would suggest that the Sphere commingle the theatrical offerings in order to continue to attract recurring attendees, as well as have their original content playing for newcomers to Las Vegas, which would help with the return on investment from the Postcard from Earth production,” observed the research firm.

In June, Carolyn Blackwood joined the company as head of Sphere Studies after previously serving as chief operating officer of Warner Bros.

NBA Deal Could Benefit Sphere, Too

Many investors view Sphere through the lens of its Las Vegas property, but the company is the product of a 2023 spin-off by Madison Square Garden Entertainment Corp., and the newly created company also holds the lucrative MSG Networks, which broadcast New York Knicks games.

Ownership of that regional sports network has been viewed as a potential drag on the broader Sphere investment thesis, but Seaport noted the NBA’s new broadcasting deal could be a blessing in disguise for Sphere investors.

The research firm said if the deal “materially impacts” MSG Networks and hastens a bankruptcy filing by that entity, it could result in the removal of debt from Sphere that’s equivalent to $25 a share.