Entertainment stocks have been in a world of pain over the past few quarters. Undoubtedly, inflation and worries of a crash-landing for the economy have many consumers easing off on their spending habits.
Many of us have been spoiled by a growing number of entertainment options. However, after being locked down with such services for around a year, many may be more inclined to hit the “cancel” button on the entertainment offerings that got them through the worst of lockdowns.
As beaten-down entertainment stocks look to produce more quality content in the face of a recession, competitive pressures are bound to take it to the next level. In this piece, we used TipRanks’ Comparison Tool to compare three freshly sold-off entertainment stocks to see where Wall Street stands.
Disney stock seems to have lost all of its magic since the pandemic hit. Though Disney+ continues to bring in the subscribers, the rate of growth has slowed, and it could continue as consumers re-evaluate their monthly budgets. Indeed, video streaming wasn’t all that it was made to be. It’s great for consumers, who can switch between services in any given month, but it’s proven costly for the media firms.
Moving ahead, Disney is not slowing down with its streaming service. It’s ready to spend tens of billions on new content. After all, it’s a strategy that could see Disney+ take share away from rivals, even as the average consumer tightens their wallets.
In terms of value for what you get, it’s tough to stack up against Disney+. With a pipeline full of fantastic content, it makes hitting “cancel” so much harder versus the likes of other video streamers. For investors, streaming has fallen out of favor, but I think Disney is a go-to play for those looking for a best-in-breed entertainment company at a modest multiple.
Aside from streaming, Disney’s parks and cruise line businesses have also weighed down the stock. From the pandemic to yet another recession, such businesses could continue to drag their feet. At the end of the day, though, demand for experiences is unlikely to fade away forever. If anything, the company will have the ability to raise prices considerably once the economy is ready to grow again.
Wall Street is bullish, with the average Disney price target of $147.35, implying 56.2% upside.
Roku, the maker of popular video-streaming sticks, has been rumored to be a takeover target in recent weeks. The stock got a nice bump, but they’re now back on the retreat as investors fret over higher interest rates and their impact on high-multiple growth stocks.
Roku stock has been a colossal disappointment, but its shares are starting to get really cheap at 3.9 times sales. After clocking in a better-than-feared first quarter, Roku has the means to navigate the coming consumer recession. Still, the outlook isn’t upbeat, with revenue weakness likely to weigh on the firm’s coming second-quarter results.
Undoubtedly, many may bash Roku for having a sub-par business model. It makes a commoditized product and is a latecomer into a video-streaming marketplace that’s no longer worthy of a premium price tag.
As consumers tighten, ad-based streaming may pick up in popularity. With such a solid user base, I wouldn’t be surprised if the firm can leverage its network effect to excel amid dire economic conditions.
Looking to Wall Street, analysts are bullish, with the average Roku price target of $152.26 suggesting 84.04% upside.
Electronic Arts (EA)
Moving from video-streaming to video games, we have Electronic Arts, which has been stuck in a multi-year rut.
The sports-gaming juggernaut will lose its FIFA license but is poised to continue onward with its unbranded EA Sports FC title. It’s still the same game, just a different flavor. While some analysts expect minimal demand destruction from losing the license, I can’t say the same. The FIFA brand is a big deal, and many fanatics could be quick to move on, especially if other licenses fall through.
After releasing a few disappointing titles, questions linger about how EA can keep up with rivals. The company pointed the finger at rival shooter Halo Infinite as a factor for why EA’s Battlefield 2042 flopped on release.
In short, EA doesn’t seem to be on the right track, as it sheds licensing agreements for major sports titles while succumbing to competitive and potentially macroeconomic pressures. Undoubtedly, the road ahead just looks bumpier, but as the video-game industry looks to consolidate, perhaps another entertainment firm will be interested in a takeover.
At 46.5 times trailing earnings and 5.2 times sales, EA stock is not cheap. It may be an industry leader with many levers to pull, but how the firm fares in a recession will be a big question mark.
Wall Street is bullish, with the average EA price target of $150.80, implying a 17.26% gain.
Entertainment stocks have taken a hit amid the market sell-off. Though the road ahead could be choppy, some attractive valuations are starting to appear.
Wall Street seems most bullish on Disney. It’s hard to disagree with that, given how far the house of mouse has fallen.
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