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Madison Square Relies on Partnerships, Sports Business Weak

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The Madison Square Garden Company (MSG - Free Report) banks on continual expansion strategies through acquisitions and partnerships to drive growth. The company’s strong brand presence also lends it a competitive advantage. However, weakness in the sports business and tricky nature of consumer discretionary spending are potential headwinds.

In the first quarter of fiscal 2019, the company posted narrower-than-expected loss while its top line surpassed the Zacks Consensus Estimate. Moreover, Madison Square’s earnings surpassed the Zacks Consensus Estimate in three out of the trailing four quarters, the average beat being 83.4%.

Backed by such impressive earnings trend, shares of Madison Square have rallied 18.7%over the past year, outperforming 8.4% collective decline of the industry it belongs to. 

Operational Efficiency, Partnerships and Acquisitions Bode Well

In order to strengthen footprint and explore additional opportunities, Madison Square has been consistently relying on partnerships and acquisitions. In the fiscal third quarter, management announced that it will acquire a parcel of land in London to build another "Sphere" with the intent of transforming music/event scenario. This venue is expected to debut in 2021, following a venue in Las Vegas in 2020.

The company procured a majority stake at the entertainment, dining and nightlife company TAO that enabled it to expand 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.

Meanwhile, 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.

In fiscal 2018, Madison Square witnessed double-digit sponsorship and signage growth. The company renewed partnership agreements with Delta Air Lines, Charter Communications and Kia, and added Squarespace as a new partner. Squarespace will sponsor its first-ever Knicks Jersey. In the entertainment business, Madison Square partnered with Hulu and Montefiore Health System.

Recently, Madison Square also announced a multifaceted partnership with PepsiCo. The company also announced that Tedeschi Trucks Band will play on multiple shows annually through 2022 at both Beacon Theatre and Chicago Theatre.

Meanwhile, 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.

Sports Business Concerns

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 Madison Square’s ticket sale prices and profits.

Madison Square has been delivering sluggish performance in its sports segment. The company hadn’t derived any profit from the NBA and NHL seasons that concluded during the third quarter of fiscal 2018. Further, with the not-so-impressive performance of the Knicks team, the sale of tickets further became a challenge. We expect headwindsrelated to ticket sales to continue.

In first-quarter fiscal 2019, revenues from the sports segment declined 32% year over year to $55.4 million. The downside can be attributed to the timing of local media rights revenues from MSG Networks Inc. as well as lower suite rental fee revenues. However, the decline was partially offset by an increase in revenues from league distributions.

Given the underperforming sports business segment, Madison Square recently contemplated the spin-off of its sports business from the entertainment segment.

Zacks Rank & Stocks to Consider

Madison Square currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the leisure space include Hudson (HUD - Free Report) , Marcus Corporation (MCS - Free Report) and SeaWorld (SEAS - Free Report) . While Hudson and Marcus sport a Zacks Rank #1 (Strong Buy), SeaWorld carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hudson, Marcus and SeaWorld’s earnings for the current year are expected to grow 104.6%, 22.1% and 138.1%, respectively.

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