Shares of Sphere Entertainment surged 2.82% today following an upgrade from Seaport Research. The research firm improved Sphere’s rating from “neutral” to “buy,” assigning a price target of $48, suggesting a near 20% increase from today’s closing price. Seaport highlighted that companies in the entertainment and sports sectors, like Sphere, might be resilient in a weakening economy due to their limited reliance on advertising revenue, which is vulnerable during a recession.
Seaport’s note emphasized, “We think experience economy companies such as Sphere Entertainment Co. should retain sufficient consumer demand by those who are not as economically-sensitive…While our SPHR downgrade this summer was partially predicated upon the pending low seasonality of Las Vegas visitation and the waning capacity utilization of The Sphere Experience after six months of multiple shows per day, we think there are potential catalysts/company disclosures on the horizon that could revive interest in the shares.” They acknowledged Sphere’s minor advertising exposure comes from ads and suite license fees on the exosphere of its Las Vegas venue, yet its primary revenue stems from concerts and other experiential events.
In its short tenure in Las Vegas, Sphere has successfully drawn major acts like U2 and The Eagles. However, due to the periodic nature of such high-profile concerts, the company must explore other means to attract visitors. The Sphere Experience’s “Postcard from Earth,” launched last October, fulfills this need, and Seaport suggests Sphere might tap into Hollywood to allure more guests. Analysts propose a novel strategy where Sphere could pay studios upfront franchise fees to remaster classic films for its venue.
Seaport noted, “Extending the logic from that strategic hire, now there is news that the Sphere may remaster Warner Bros.’ The Wizard of Oz at a cost of $80 million as a potential new Sphere Experience film. We would suggest that the Sphere commingle the theatrical offerings in order to continue to attract recurring attendees, as well as have their original content playing for newcomers to Las Vegas, which would help with the return on investment from the Postcard from Earth production.” This follows the June appointment of Carolyn Blackwood, former chief operating officer of Warner Bros., as head of Sphere Studies.
Additionally, Sphere’s assets include MSG Networks, responsible for broadcasting New York Knicks games, following the 2023 spin-off by Madison Square Garden Entertainment Corp. While some investors see this as a potential burden, Seaport pointed out that the NBA’s new broadcasting deal might be advantageous for Sphere investors. The firm elaborates, “The research firm said if the deal ‘materially impacts’ MSG Networks and hastens a bankruptcy filing by that entity, it could result in the removal of debt from Sphere that’s equivalent to $25 a share.” This development could potentially transform a challenge into a significant financial relief.
