Last week, we wrote that advertisers were worried about two things: 1) A second wave of COVID and 2) Back to School – and perhaps those two are related as schools appear likely to start the year with relaxed dress codes. Back to COVID – with some markets seeing an increase in cases, advertisers appear to be re-thinking budgets and the market may be slowing somewhat. We continue to expect a saucer shaped recovery.
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I'm excited to be adding the Live Entertainment vertical to our Media and Distribution coverage with the addition of MSG Entertainment (OP) and MSG Sports (OP). As the economy slowly begins to re-open, we view MSGE and MSGS as disproportionate beneficiaries. I am also completing the hat-trick of picking up MSG Networks (UP) under our Local vertical.
We view MSGS as owner of two of the most valuable sports franchises, with the NY Knicks & NY Rangers. While near- to medium-term profitability of the business is likely be challenged due to COVID-19, we believe the intrinsic value of the teams remains unchanged from pre-pandemic levels given; 1) the iconic brand and scarcity value of the teams, 2) the resilient & growing demand for live sports (esp. abroad), and 3) the tailwind of rising sports rights fees. Initiate with an Outperform rating & $208 PT.
Initiate with an Outperform rating and $118 PT. The recent spin-off of MSGE was intended to unlock value in the Entertainment biz, but COVID-19 caused a delay. Even so, we believe in the company’s long-term strategy given its collection of one-of-a-kind venues / brands (i.e. The Garden) and its investment in the Las Vegas Sphere, which we believe will deliver on its DD ROI promise. At current levels, we think the market is underappreciating the value of MSGE’s portfolio, while giving little-to-no credit to Sphere. We believe the dislocation presents an attractive entry point for LT investors.
Initiate with Underperform rating & $8 FYE’21 PT. While we think MSGN has some of the most sought-after sports content in the NYC market, the RSN business model has come under significant pressure due to accelerating pay-TV sub losses, its high price tag, and growing fixed cost base. With the backdrop of these secular headwinds, we expect further pressure on the stock.
SSP is reportedly exploring a sale of Stitcher, its podcasting production and advertising services business. This news was reported by The Information and comes on the heels of Spotify’s big spending spree the past 12 months, with the Joe Rogan exclusive licensing deal ($100MM+) and acquisition of The Ringer (~$200MM). According to the trade, SSP is in the early innings of the process and is expected to inquire interest from the top audio players, Spotify and Sirius XM, along with others in the space. We think AMZN could also be a potential buyer given its publicly stated interest in podcasting.
Following recent comments from mgmt. and industry checks, we are fine tuning our estimates, with HSD growth worth calling out. With the underlying business improving, Sky likely bottoming in 3Q, and the stock trading at 7.6x ‘21E EBITDA, we like the risk/reward. And maintain our OP and $43 Year-End ‘20 PT.
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