4 stocks to watch in a thriving entertainment industry

Zacks’ film and television production and distribution industry is benefiting from rising demand for digital entertainment, fueled by continued capacity and operational restrictions at movie theaters, theme parks and cruise lines. The increased consumption of media, music and news via the internet, triggered by the work-and-learn-at-home wave, has been a key catalyst for industry participants such as news company NWSA, World Wrestling Entertainment wwe, iQIYI IQ and CuriosityStream CURI. Companies have focused on superior product strategy and prudent capital investments. The steady recovery in advertising spending and the resumption of production pipelines bode well for film and TV production companies.

Industry Description

Zacks’ film and television production and distribution industry includes companies engaged in film and television production, distribution and exhibition. The main activities of the industry participants include the production and distribution of entertainment content to cinemas, television stations, video-on-demand platforms, streaming services and other exhibitors. Imax provides entertainment technology and specializes in film technology and presentations. Industry participants produce and distribute films for theatrical release and direct-to-video release in addition to television programming. These actors are heavily dependent on the domestic and international box office performance of their films, the number of film openings and the ratings of TV shows.

3 trends in the film and television production industry in focus

Over-the-top services are gaining in importance: Companies involved in content creation seek to distribute content through over-the-top services to increase the popularity of their franchises. They want to offer exclusive content and a differentiated experience. However, streaming companies are increasingly producing original and award-winning feeds to reduce licensing costs and over-reliance on third-party content providers. This is likely to harm the content distribution strategy of industry players.

Binge Watching Drive Consumption: Factors such as binge-watching, increasing Internet penetration, and advances in mobile, video, and wireless technologies have kept viewers locked into the small screen. To keep up with new consumption patterns, industry participants are turning to digital content distribution. The advent of digital opportunities makes consumer data readily available to businesses. By using AI tools, production houses gain a better understanding of user preferences. This helps them produce content that resonates with viewers. However, increasing spending on content and sales and marketing is hurting profitability due to stiff competition from streaming providers.

Technological development helps perspectives: Exhibitors are turning to highly efficient and cost-effective technologies such as laser-based projection systems to improve image quality and the overall film experience. Additionally, the use of technologies such as motion seats, immersive audio systems, and interactive films, among others, are expected to enhance the viewing experience. The increasing adoption of AR and VR technologies bodes well for industry participants. The development of alternative distribution channels for cinematographic films such as home video, pay-per-view, streaming services, video-on-demand, internet and syndicated and broadcast television is damaging exhibitors.

Zacks’ industry ranking indicates a bright future

Zacks’ film and television production and distribution industry is part of the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #96, making it in the top 38% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates solid short-term prospects. Our research shows that the top 50% of industries evaluated by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of industries ranked by Zacks is a result of positive earnings prospects for the companies that make it up. Looking at the revisions to aggregate earnings estimates, analysts appear optimistic about the earnings growth potential of this group. As of November 31, 2021, the industry earnings estimate for 2022 is up 56.3%.

Before presenting you with some stocks to consider for your portfolio, let’s take a look at recent stock market performance and the valuation picture of the industry.

Industry lags behind S&P 500, beats sector

Zacks’ film and television production and distribution industry outperformed the Zacks S&P 500 Composite but beat its own sector over the past year.

Shares in this industry are down 38.2% overall, compared to the 19.7% decline in the S&P 500 and the 43.1% decline in the Zacks consumer staples sector over the same period.

One-year price development

Current rating of the industry

Based on the trailing 12-month price to sales (P/S) ratio, a commonly used multiple to value film and television production and distribution stocks, the industry is currently trading at 1.16X compared to the 3.48x the S&P 500, 1.79x the sector.

Over the past five years, the industry has traded as high as 2.48x and 0.92x, and has traded at a median of 1.49x, as shown in the chart below.

Trailing 12-Month Price to Sales (P/S) Ratio.

4 Movie & TV Stocks You Should Watch Right Now

World Wrestling Entertainment: Shares of this Zacks Rank #1 (Strong Buy) company are up 52.6% year-to-date. WWE has benefited from the return of live events as pandemic-induced restrictions ease. You can see the full list of today’s Zacks #1 Rank stocks here.

World Wrestling Management expects record revenues in 2022 from live, ticketed events, hosting of additional major international events, higher rights fees for flagship programs Raw and SmackDown, and monetization of new original series.

For 2022, WWE projected an adjusted OIBDA in the range of $360 million to $375 million, indicating year-over-year growth of 10% to 15%. Notably, WWE has expanded its reach across platforms like Peacock and Spotify, and established new sponsors and product partners.

The Zacks Consensus estimate for World Wrestling’s 2022 earnings has moved up 3.2% over the past 30 days to $2.57 per share.

Price and Consensus: WWE

News Society: The company benefits from prudent strategic efforts that include the ongoing digital transformation of the business and investments in the Digital Real Estate Services, Dow Jones and Book Publishing segments.

News Corporation has diversified its revenue streams through strategic acquisitions and operational improvements. It’s optimistic about the acquisitions of its OPIS and Base Chemicals businesses, which are likely to enhance Dow Jones’ information services business.

News Corporation is well positioned to capitalize on opportunities arising from technology exchanges across regions and companies and bundled offerings of enriched content to consumers and advertising partners.

News Corporation shares are down 23.4% year to date. The Zacks consensus estimate for fiscal 2022 earnings for this ranked 3 Zacks company (Hold) has remained steady at 99 cents per share for the last 30 days.

Price and consensus: NWSA

iQIYI: The Company offers movies, television dramas, variety shows and other video content. The company recently entered into a definitive agreement with Douyin under which it will license select content to Douyin for editing and distribution as short videos in formats agreed upon by the two companies.

The company already has a huge subscriber base in China, one of the largest consumer markets in the world. Strong demand for company-produced drama series, original films and variety shows in international markets is a key catalyst for near-term revenue growth.

Shares of iQIYI are down 50.2% year-to-date. The Zacks consensus estimate for this ranked Zacks company’s loss in fiscal 2022 has remained steady at 4 cents per share over the past 30 days.

Price and Consensus: IQ

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

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

The Zacks consensus estimate for this Zacks #3 company’s loss per share in 2022 has remained steady at $1.03 per share for the last 30 days. CuriosityStream shares are down 78.9% year to date.

Price and consensus: CURI

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News Corporation (NWSA): Free stock research report

World Wrestling Entertainment, Inc. (WWE): Free Stock Analysis Report

iQIYI, Inc. Sponsored ADR (IQ): Free Stock Research Report

CuriosityStream Inc. (CURI): Free Stock Research Report

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