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Madison Square Rides on Partnerships, Sports Business Hurts

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The Madison Square Garden Company’s (MSG - Free Report) strong brand presence, efficient innovations in operations, and continual expansion through acquisitions and partnerships bode well. However, intense competition faced by the company’s sports business remains a concern.

Nevertheless, it has a strong industry presence that allows it to explore opportunities for new content and brand extensions. Madison Square is expected to tread on growth trajectory, given first-class operations, coupled with new innovations and the ability to deliver top-class experiences to guests.

In a year’s time, its shares have rallied 57.7% against a 0.5% collective decline of the industry it belongs to. Moreover, Madison Square’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, recording an average of 69.45%.

Strength in Entertainment Business to Drive Revenues

Madison Square continues to exhibit stellar performance in the entertainment business. The last reported quarter marked the company’s second quarter in a row wherein live entertainment revenues grew in double digits year over year. In the third quarter of fiscal 2018, the Entertainment segment revenues came in at $159.6 million, up 106% year over year. It is of the opinion that the fourth quarter is also shaping up well with record bookings growth. The company has several live entertainment services lined up for the year. Upcoming highlights include the Tony Awards in June, followed by the MTV Video Music Awards in August, both at the Radio City Music Hall.

Operational Efficiency & Partnerships — Major Fortes

Madison Square continues to benefit from ongoing efforts to reinstate growth through multi-night and multi-marketing agents. The company’s iconic venues hosted a diverse range of concerts, marquee events and family shows with immaculate operational expertise. It also held the 60th Annual Grammy Awards that further proved how skillful its operational team is.

Madison square is relentlessly trying to add value to core operational team by utilizing its proficiency in areas like marketing partnerships and media rights. In the third quarter of fiscal 2018, the company completed its marketing partnership with several companies including Hewlett-Packard and Kia Motors. With innovative venues like MSG Sphere, the company aims to transform the live entertainment industry by offering cutting edge video, acoustics, and connectivity technologies to audiences and storytellers for the purpose of interaction. In the last reported quarter, management announced that it will acquire a parcel of land in London to build another "Sphere", which is expected to debut in 2021, following a Las Vegas venue in 2020.

The company procured a majority stake at the entertainment, dining, and nightlife company TAO that has enabled to grow its portfolio from 19 to 26 venues. Venue expansion remains the primary strategy for Madison Square as it allows marketing partners to showcase their brands in powerful and innovative ways, by leveraging the venue's unique platform. Notably in 2014, the company acquired 50% interest in Tribeca Enterprises, owner of the acclaimed Tribeca Film Festival. In 2016, Madison Square acquired an approximately 12% common equity stake in Townsquare Media, a leading media, entertainment and digital marketing solutions company.

Weakness in Sports Business Hurts

Madison Square has been delivering sluggish performance in the sports segment. The company hadn’t derived any profit from the NBA and NHL seasons that concluded during the third quarter. Also, with not-so-impressive performance of the Knicks team, sale of tickets has further become a challenge. We expect ticket sales headwinds to continue. In the fiscal third quarter, revenues from the sports segment declined 3% to $300 million. Meanwhile, Madison Square operates in a market where numerous sports and entertainment options are prevalent. The company faces increased competition from Yankees, Mets, Giants, Islanders and so on. This remains a potential threat to the company’s ticket sale prices and profits.

Zacks Rank & Stocks to Consider

Madison Square currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the leisure space include Lindblad Expeditions (LIND - Free Report) , Town Sports International Holdings, Inc. (CLUB - Free Report) and RCI Hospitality (RICK - Free Report) . While Lindblad and Town Sports flaunt a Zacks Rank #1 (Strong Buy), RCI Hospitality carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lindblad, Town Sports International and RCI’s earnings for 2018 are expected to grow 155.6%, 211.8% and 52.5%, respectively.

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