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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 continue to be concerns. Nevertheless, the industry participants are benefiting from the change in consumer preference for over-the-top (OTT) content. Companies like Pearson (PSO - Free Report) , Sphere Entertainment (SPHR - Free Report) and Sinclair (SBGI - 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 #186, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Dec 31, 2022, the industry’s earnings estimate for 2023 has moved down 25.3%.
Despite the gloomy industry outlook, a few stocks are worth watching based on a strong earnings outlook. 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 0.6% in the abovementioned period against the broader sector’s growth of 16.2%. The S&P 500 has returned 25.1% during the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 0.91X compared with the S&P 500’s 3.99X and the sector’s 1.88X.
Over the past year, the industry has traded as high as 1.25X and as low as 0.79X, with a median of 0.92X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Media Stocks to Watch
Pearson: This Zacks Rank #3 (Hold) company is a global educational publishing and services company. It publishes books, periodicals, reports and screen-based services for professional communities worldwide, under brand names like Financial Times, Pitman Publishing and Churchill Livingstone. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In addition, the company delivers and installs off-the-shelf software and provides services to academic institutions, such as program development, student acquisition, education technology, and student support services, as well as undertakes contracts to process qualifying tests for individual professions and government departments under multi-year contractual arrangements.
Pearson is well-positioned to meet changing educational, training, and assessment needs. From virtual learning to workforce skills, Pearson is involved in all sorts of areas, which should grow in importance in an increasingly digital, skill-based economy.
The Zacks Consensus Estimate for the company’s 2023 earnings has remained steady at 72 cents per share over the past 30 days. PSO shares have gained 9.6% year to date.
Price and Consensus: PSO
Sphere Entertainment: Another Zacks Rank #3 stock, Sphere Entertainment is a premier live entertainment and media company comprising two reportable segments, Sphere and MSG Networks. Sphere is a next-generation entertainment medium, and MSG Networks operates two regional sports and entertainment networks, as well as a direct-to-consumer and authenticated streaming product.
The company’s first Sphere opened in Las Vegas in September 2023. The venue can accommodate up to 20,000 guests. It will host a wide variety of events year-round, including The Sphere Experience, which features original immersive productions, as well as concerts and residencies from renowned artists, and marquee sporting and corporate events.
At MSG Networks, the start of the 2023-24 NBA and NHL seasons marked the first year of availability for MSG Networks' direct-to-consumer and authenticated streaming service, MSG+, which offers monthly and annual subscriptions, and, in an industry-first, the ability to purchase on a per-game basis.
Sphere shares have declined 23% year to date. The consensus mark for SPHR's fiscal 2024 loss has narrowed to 79 cents per share from a loss of $1.77 in the past 30 days.
Price and Consensus: SPHR
Sinclair: This Zacks Rank #3 company provides content through local TV stations and digital platforms. It distributes programming from third-party networks, syndicators, local news, original programming and college sports. The company also manages digital media products related to its TV station assets and oversees technical and software services companies.
Additionally, Sinclair owns the intellectual property for broadcast technology advancement and engages in diverse businesses like real estate, venture capital, private equity and direct investments.
Latest series acquisitions for the upcoming broadcast season primetime lineups by Sinclair Broadcast Group's free over-the-air multicast television networks, Comet, CHARGE! and TBD, are expected to boost top-line growth in the near term. These acquisitions include both well-known major TV franchises and original series.
The Zacks Consensus Estimate for the company’s 2023 earnings has remained steady at $1.95 per share over the past 30 days. SBGI shares have decreased 16.2% year to date.
Price and Consensus: SBGI
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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 continue to be concerns. Nevertheless, the industry participants are benefiting from the change in consumer preference for over-the-top (OTT) content. Companies like Pearson (PSO - Free Report) , Sphere Entertainment (SPHR - Free Report) and Sinclair (SBGI - 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 #186, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Dec 31, 2022, the industry’s earnings estimate for 2023 has moved down 25.3%.
Despite the gloomy industry outlook, a few stocks are worth watching based on a strong earnings outlook. 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 0.6% in the abovementioned period against the broader sector’s growth of 16.2%. The S&P 500 has returned 25.1% during the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 0.91X compared with the S&P 500’s 3.99X and the sector’s 1.88X.
Over the past year, the industry has traded as high as 1.25X and as low as 0.79X, with a median of 0.92X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Media Stocks to Watch
Pearson: This Zacks Rank #3 (Hold) company is a global educational publishing and services company. It publishes books, periodicals, reports and screen-based services for professional communities worldwide, under brand names like Financial Times, Pitman Publishing and Churchill Livingstone. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In addition, the company delivers and installs off-the-shelf software and provides services to academic institutions, such as program development, student acquisition, education technology, and student support services, as well as undertakes contracts to process qualifying tests for individual professions and government departments under multi-year contractual arrangements.
Pearson is well-positioned to meet changing educational, training, and assessment needs. From virtual learning to workforce skills, Pearson is involved in all sorts of areas, which should grow in importance in an increasingly digital, skill-based economy.
The Zacks Consensus Estimate for the company’s 2023 earnings has remained steady at 72 cents per share over the past 30 days. PSO shares have gained 9.6% year to date.
Price and Consensus: PSO
Sphere Entertainment: Another Zacks Rank #3 stock, Sphere Entertainment is a premier live entertainment and media company comprising two reportable segments, Sphere and MSG Networks. Sphere is a next-generation entertainment medium, and MSG Networks operates two regional sports and entertainment networks, as well as a direct-to-consumer and authenticated streaming product.
The company’s first Sphere opened in Las Vegas in September 2023. The venue can accommodate up to 20,000 guests. It will host a wide variety of events year-round, including The Sphere Experience, which features original immersive productions, as well as concerts and residencies from renowned artists, and marquee sporting and corporate events.
At MSG Networks, the start of the 2023-24 NBA and NHL seasons marked the first year of availability for MSG Networks' direct-to-consumer and authenticated streaming service, MSG+, which offers monthly and annual subscriptions, and, in an industry-first, the ability to purchase on a per-game basis.
Sphere shares have declined 23% year to date. The consensus mark for SPHR's fiscal 2024 loss has narrowed to 79 cents per share from a loss of $1.77 in the past 30 days.
Sinclair: This Zacks Rank #3 company provides content through local TV stations and digital platforms. It distributes programming from third-party networks, syndicators, local news, original programming and college sports. The company also manages digital media products related to its TV station assets and oversees technical and software services companies.
Additionally, Sinclair owns the intellectual property for broadcast technology advancement and engages in diverse businesses like real estate, venture capital, private equity and direct investments.
Latest series acquisitions for the upcoming broadcast season primetime lineups by Sinclair Broadcast Group's free over-the-air multicast television networks, Comet, CHARGE! and TBD, are expected to boost top-line growth in the near term. These acquisitions include both well-known major TV franchises and original series.
The Zacks Consensus Estimate for the company’s 2023 earnings has remained steady at $1.95 per share over the past 30 days. SBGI shares have decreased 16.2% year to date.