4 Stocks to Watch From a Prospering Entertainment Industry – January 31, 2023

The SAX film and television production and distribution industry is benefiting from increased demand for digital entertainment due to capacity and operational constraints at movie theaters, theme parks and cruise lines. Increased consumption of media, music and news via the web, fueled by the work-from-home wave, is a major driver for industry partners. World Wrestling Tournament (WWE free report), iQIYI (I.Q free report), IMAX Corporation (IMAX free report) and Curiosity Stream (CURI independent report). Companies focus on sound product strategy and prudent capital investment. A steady recovery in the ad spending environment and restarting production pipelines bode well for film and television production companies.

Industry description

The Zacks Film and Television Production and Distribution industry includes companies involved in film and TV production, distribution and exhibition. Industry partners’ core activities include the production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services and other exhibitors. IMAX offers entertainment technology and specializes in motion picture technologies and presentations. Industry partners produce and distribute motion pictures for theatrical and direct-to-video releases in addition to TV programming. These players depend on the box office performance of their films, domestically and internationally, the number of film releases and the ratings of TV shows.

3 Film and Television Production Industry Trends in Focus

Over-the-top services gain importance: Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises. With this, they look to provide exclusive content and a differentiated experience. However, streaming companies are increasingly producing original and award-winning feed to reduce licensing costs and over-reliance on third-party content providers. This will harm the content distribution strategy of industry partners.

Excessive driving consumption: Factors such as binge-watching, Internet penetration, and advances in mobile, video, and wireless technologies are driving viewers to smaller screens. In line with new consumption patterns, industry partners are turning to digital content delivery. The emergence of digital capabilities makes customer data readily available to companies. With the use of AI tools, production houses have a better understanding of user preferences. This helps them produce content that resonates with viewers. However, rising costs for content, sales and marketing are hurting profitability due to stiff competition from streaming players.

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Technological advancements help possibilities: Exhibitors are turning to highly efficient and cost-effective technologies such as laser-based projection systems to enhance image quality and the overall cinema experience. Additionally, the use of technologies such as motion seating, immersive audio systems, and interactive movies are expected to enhance the viewing experience. The growing adoption of AR and VR technologies bodes well for industry stakeholders. However, the evolution of alternative motion picture distribution channels such as home video, pay-per-view, streaming services, video-on-demand, Internet, syndicated and broadcast television is hurting exhibitors.

The Zacks Industry Rank indicates bright prospects

The Zacks Film and Television Production and Distribution industry is in the broad Zacks Consumer Discretionary Sector. It carries a Zacks industry rank of #80, placing it in the top 32% of over 249 Zacks industries.

The group’s Zacks Industry Rank, which is essentially the average of the Zacks Ranks of all member stocks, indicates strong near-term prospects. Our research shows that the top 50% of Zacks Rank industries outperform the bottom 50% by a factor of 2 to 1.

The industry’s position in the top 50% of Zacks Rank industries is the result of an overall positive earnings outlook for the constituent companies. Looking at overall revenue estimate revisions, analysts seem optimistic about the group’s revenue growth prospects. As of January 31, 2022, the industry’s revenue estimate for 2022 has increased by 19.7%.

Before we present a few stocks you might want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Beats S&P 500, Sect

The Zacks Film and Television Production and Distribution industry outperformed the Zacks S&P 500 and its sector last year.

Shares in the industry lost 7.8% overall, compared to the S&P 500’s 11.2% decline and the Zacks Consumer Discretionary sector’s 19% decline over the same time frame.

One year price performance

Current valuation of the industry

Based on trailing 12-month price-to-sales (P/S), a multiple commonly used to value film and television production and distribution stocks, the industry currently trades at 1.59X, compared to the S&P 500’s 3.62X. 1.99X of the region.

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Over the past five years, the industry has traded between 2.48X and 0.92X, recording an average of 1.49X as the chart below shows.

The trailing 12-month price-to-sales (P/S) ratio follows

4 Film and Television Stocks to Watch Now

iQIYI: The company offers movies, television dramas, variety shows and other video content. Recently, the Company entered into a definitive agreement with Douyin pursuant to which Douyin will license selected content for editing and distribution as short-form videos in formats agreed upon by both companies.

The company already has a large subscriber base in China, one of the world’s largest consumer markets. Strong demand for company-produced drama series, original films and variety shows in international markets has been a major driver of recent growth.

Shares of iQIYI have gained 52.8% over the past year. This Zacks Rank #2 (Buy) company’s 2022 loss widened to 5 cents per share over the past 30 days. You can find a complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: IQ

IMAX: This Zacks Rank #3 (Hold) company has been steadily reopening theaters, especially in the United States. Notably, Avatar: The Way of Water It ended 2022 as the highest-grossing release of the year for IMAX, with a total IMAX global box office collection of $160 million. A remarkable performance of Thor: Love and Thunder, Top Gun: Maverick IMAX also benefited.

Last week, IMAX announced that it recorded its second-best opening day in China for the Chinese Lunar New Year, with $7 million grossed across the IMAX China network. Frank Guo’s big budget sci-fi movie, Wandering Earth 26 million, making most of it, which was double the opening day of its predecessor, Wandering Earth.

Faster recovery of theater system installations and higher IMAX maintenance sales are key positives. Last year, IMAX signed a deal with China’s Wanda Films to set up six new multiplexes across the country and relocate and renovate three existing cinema halls. IMAX also plans to open seven movie theaters in Japan by the summer of 2023 in partnership with Aeon Entertainment after seeing growth in Japan’s box office market.

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The Zacks Consensus Estimate for IMAX’s 2022 earnings has been steady at 3 cents per share over the past 30 days. Shares of IMAX have fallen 11.6% in the past year.

Price and consensus: IMAX

World Wrestling Tournament: With pandemic-led restrictions eased, WWE is benefiting from the return of live events. The company expects record revenue in 2022 due to ticketed live events, additional large-scale international events, higher rights fees for flagship programs and monetization of Raw, SmackDown and new and original series.

The company raised its full-year OIBDA guidance. Management expects 2022 adjusted OIBDA to be at the upper end of the previously forecast range of $370-$385 million. WWE also announced a multi-year deal with its long-time partner Foxtel Group to expand content distribution in Australia. It also announced the creation of NXT Europe, set to launch next year, to expand the NXT brand internationally.

Notably, WWE is expanding its reach across platforms such as Peacock and Spotify and establishing new sponsors and product partners. WWE’s diversified distribution approach helps it achieve strong viewership.

Shares of this Zacks Rank #3 company are up 70% over the past year. The Zacks Consensus Estimate for World Wrestling’s 2022 earnings has remained flat over the past 30 days at $2.57 per share.

Price and Consensus: WWE

Curiosity Stream: The company features more than 10,000 titles and has launched an original production and content acquisition program. Continued strength in direct subscription revenue and contributions from program sales and sponsorships/advertising are expected to remain key drivers.

The company benefits from its unique content distribution strategy through its solid partner base. By the end of 2022, the company expects to invest more than $188 million in original productions and content acquisition. The company has invested more than $15-20 million in acquisitions like One Day University and Learn25 and partnerships like Spiegel and Nebula, which have brought additional content to the company’s content ecosystem.

This Zacks Rank #3 company’s 2022 loss per share has remained flat over the past 30 days at 82 cents per share. Shares of Curiosity Stream have fallen 63 percent in the past year.

Price and Consensus: CURI


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