This article is sponsored by mental health awareness campaign, Swear2Care!
About Sphere
I don’t know whether Las Vegas is going to be the entertainment capital of the world, and frankly, I don’t really care all that much.
I’ve never been to the arid state of Nevada and while I will fully concede that I have my fair share of interests in checking out Area 51, but while going down towards the Las Vegas Strip and allowing the house (casinos) to nearly win each and every time sounds like a blast, I think I’m just going to dive deeper into my interests lying within alien conspiracies, thank you very much.
However, irrespective of my personal opinions and views, I get it, as the younger generations rise and shape our preceding baby booming economy, it can be easily gathered that they are really, really into “experiences,” whatever that may actually mean or look like to an individual, yet it is nevertheless the indisputable truth that folks within the younger generation(s) value going somewhere, doing something or seeing someone perform much more than perhaps what baby boomers prefer or prioritize.
Heck, this is one of the reasons we are so net bullish (in the long, long-term) on companies such as Airbnb, and who knows, we might just find ourselves to be equally as bullish on Sphere Entertainment, which is broadly categorized as a media company with an apparent focus on hosting and generating revenue(s) through the production and performance of live entertainment, concerts, as they particularly pertain to the main Sphere venue itself, which is actually plotted down in Vegas.
This is why all the talk about Las Vegas was somewhat necessary. It is a large entertainment hub and it is also where Sphere Entertainment planted down its first major physical and spherical entertainment venue just a few months prior to the publication of this stock analysis article, and it has since attracted a lot of attention from the masses, as it has already hosted the well known Irish rockstars, U2, also reportedly next hosting a band by the name of Phish, more than likely with an already rather extensive and growing backlog of prospective performers lining up shows at the venue.
Now, need we even mention the fact that in-person concert and event spaces are highly sensitive to, say, public health emergencies and/or pandemics, as we certainly saw during COVID-19, as basically every single major sports league and iconic concert venue from the east to the west shut down, and with that, their respective operators and ticketing partners alike.
So yeah, this is just an inherent risk one must heavily toil with prior to even coming close to putting capital behind a security with ties to the live entertainment segment of the economy.
While still somewhat on the subject of revenue generation, Sphere Entertainment generates a great amount of its total annual revenues through the sale of tickets and it also generates sales through advertising and sponsorship partnerships and programs as well, with, for example, companies or individuals buying some second-by-second real estate on the face of the Sphere in Las Vegas, not to mention some of its associated revenue generating media network operations as well.
If Sphere Entertainment finds success in Vegas, we hardly find it a wild assumption that the company will look to expand its spherical presence in and around the United States, perhaps in more entertainment-heavy nooks of the United States, some potential regions being New York City, New York, Nashville, Tennessee, Los Angeles, California, Chicago, Illinois, among others, and if pursued, almost certainly leading to revenue growth for the shape (I mean company) in question.
All things considered, we actually do have a lot more to consider regarding this company, so let’s not wait any longer and get right into this company’s core financials so as to assist us in strongly considering whether or not this entertainment company’s stock (NYSE: SPHR) is worth buying, holding and adoring.
Sphere’s stock financials
First and foremost, Sphere Entertainment is a $1.1 billion company with an associated share price of $32.04 along with no annually distributed dividend in sight, however, it does maintain a price-to-earnings (P/E) ratio of 3.92, all initially leading us to think that this company’s stock is trading at a steep discount relative to its actual, intrinsic worth, which is hardly ever a bad thing, especially in this market environment, given what I would call the present artificial bull run.
No dividend, no problem, as this really can be viewed as an emerging entertainment staple (if Sphere plays its cards right, of course) and there are plenty of expenses for such a company to incur and maintain over time, and we do deem it would not be in the company’s best interest (at least for the foreseeable future, or until it enters a more mature state of revenue and profit generation) to drain cash, but rather, preserve as much it possibly can.
With respect to the company’s balance sheet, Sphere’s executive team is tasked with overseeing and properly deploying just south of $5 billion in terms of total assets along with almost $2.4 billion in terms of total liabilities, which, for the operations and physical land development this company engages in, is a fine balance sheet structure in the best sense of the phrase, as it is total asset-heavy and has just about a 2:1 total asset-total liability coverage, in other words, for every dollar Sphere maintains in debt, it maintains two dollars in terms of total asset coverage, leading me to feel confident, at least for the short and intermediate-terms that Sphere’s executives have acted as solid financial stewards and this company, for specific reasons of becoming overleveraged, isn’t seemingly going out of business anytime soon, and certainly also has the room to expand its physical venue presence.
Onto the condition of the company’s income statement, Sphere’s total annual revenues spanning from 2019 have not painted the prettiest of pictures, of course, primarily given that COVID-19 was an absolute and direct threat to this company and from where we stand, it still certainly remains one, bringing its revenues down from $1.4 billion down to the neighborhood of between $500 million and $700 million, following 2020, and sadly, the revenue bounce back hasn’t really been there, as throughout 2021 and 2023 the company’s respective revenue figures drifted down from $648 million to $574 million, respectively.
This mildly worries us, as recent years have been filled with extraordinary amounts of demand for in-person events and live venues, however, it also makes some sense, as Sphere perhaps sold off some of its media operations and/or live venues and has since leaned down a bit, which, if this is precisely the case, it is a positive, no doubt about it, as it allows Sphere Entertainment to operate off of a better base and also focus its operations more intensely on where the consumer is going (i.e., live venues), not where they have been (i.e., traditional legacy media and broadcasting).
With all of this being said, turning the page over to the company’s cash flow statement, Sphere’s total cash from operations figures (also referencing between and including 2019 and 2023) have been in good shape, overall, that is, as it ranged between -$59 million (when else but 2021) and a relative high of $308 million, as reported in 2020, eking out a decent deal of cash from its operations, which, from our vantage point, is a bit better than bad, as it definitely implies that Sphere is able to not only turn over cash now, amidst operating within a higher interest rate environment, but even more so, can produce more cash as rates come down, which isn’t really a strategy or something to rely on, as the pendulum will certainly swing the other away, but more so just an observation and a net positive, in our eyes.
Sphere’s stock fundamentals
Speaking a bit more to the company’s profitability, Sphere Entertainment is apparently really, really good at attaining a profit, specifically on a trailing twelve month (TTM) net profit margin basis, at least according to the figures displayed on TD Ameritrade’s platform, as the platform pegs the company’s TTM net profit margin as standing as high as 50.18% to the industry’s respective average of 3.34%, which, from where we stand, at least, heavily indicates to our initial presumption that this entertainment operator has hewed down its operations and company overall, making it a more mean, lean ticket-selling machine, and, hey, a 50% net profit margin (again, on a TTM basis) is pretty much the furthest thing from unattractive, and frankly, given what I have heard around my friend circles regarding just how expensive concert tickets have become, this is certainly adding to Sphere’s healthy TTM net profit margin.
In addition to the company’s bolstering TTM net profit margin, Sphere Entertainment’s TTM returns on both assets and investments have remained competitive with respect to the competition’s respective averages as well, with, for instance, the firm’s listed TTM return on assets of 5.55% to the industry’s comparable average of 2.49%, telling us that Sphere has done a much better job at planting and gaining from the assets it has put to work and continues putting to work, for example, the entertainment venues it operates.
Should you buy Sphere stock?
It turns out there’s a whole lot more than just being a shape, maybe even of the earth, depending on who you ask.
All kidding aside, Sphere Entertainment seems like a very good venue and operator and with all of the industry tailwinds and the rising generations valuing experiences and with that, being readily willing to pay a premium for said experiences, we think this company has a very good future ahead of itself, of course, one must be willing to ride the peaks and the valleys, as COVID-19 did a number on this company’s revenues and put a dent in its cash flows, however, with its exorbitant TTM net profit margin, excellent core TTM return metrics, its balance sheet in good standing, it perhaps shaving off of the not as lucrative sects of its overall business operations in the future and focusing purely on some select broadcasting but primarily on event hosting and management, not to mention the company’s present valuation with respect to its aforementioned price-to-earnings ratio, we feel it wouldn’t be right (based on the facts and trends, of course) if we didn’t give Sphere’s stock (NYSE: SPHR) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.