Hollywood : Late in the year, the resurgence of discussions about sector deals provided a boost to certain stocks, even as uncertainties lingered regarding the advertising and streaming landscape.
In 2022, both streaming giant Netflix and numerous Hollywood giants experienced a decline in their stock values. Moving into 2023, major players in media and technology faced another challenging year with investors, despite a positive finish to the year driven by renewed discussions about mergers and acquisitions.
Netflix rebounded with subscriber growth, particularly with its ad-supported streaming offering, leading to a significant recovery in its stock in 2023. Other winners for the year included music streamer Spotify, Roku, and Lionsgate, outperforming the broader S&P 500 stock index’s gain of 24.3%, escaping the challenges faced by much of the media sector.
Traditional Hollywood players, especially those with legacy linear TV networks, had a more turbulent performance amid digital competition. However, some, like Disney with CEO Bob Iger back in charge, managed to register slight gains for the year after the struggles of 2022.
Netflix’s shares, led by executive chairman Reed Hastings and co-CEOs Ted Sarandos and Greg Peters, closed the year at $486.88, a 65% increase from its 2022 closing price of $294.88.
Other large-cap entertainment conglomerates faced difficulties throughout 2023 due to factors such as Hollywood writers’ and actors’ strikes, cord-cutting, and weakness in the advertising market. Despite narrowing streaming losses, investors are still awaiting sustained profitability from sector giants, especially as 2024 is anticipated to be the year of the streaming bundle. Hollywood majors have responded by trimming content budgets and reducing debt to enhance their growth prospects.
Amidst this backdrop, increased confidence in the streaming arena and a resurgence of deal chatter late in the year, fueling predictions of megadeal announcements over the next 12-18 months, boosted various media and tech stocks. Notable corporate deal headlines included Warner Bros. Discovery acquiring Turkish streamer BlueTV, Archetype purchasing youth-skewing financial news streamer Cheddar from Altice USA, and Lionsgate closing its eOne acquisition while increasing its majority stake in 3 Arts Entertainment.
Although Warner Bros. Discovery remained profitable in its streaming business in the first nine months of 2023, uncertainty loomed as CEO David Zaslav explored potential talks about a deal for Paramount Global. Despite this, WBD shares ended the year up 20%, closing at $11.38. Sony Group Corp., with Sony Pictures as a key earnings driver, and NBCUniversal owner Comcast also performed well, posting stock gains of 24% and just over 25%, respectively, by the end of 2023. Investors focused on factors such as declining losses at streamer Peacock for Comcast, which reached 30 million paying subscribers by the end of the year.
The parent company of NBCUniversal also announced a deal to sell its minority stake in streaming service Hulu to Disney for $8.61 billion. Both companies are currently in the process of determining a fair market value for the final sale price that Disney will pay.
Pivotal Research Group analyst Jeff Wlodarczak, who rates Comcast shares as a “buy,” raised his price target on the stock in mid-December by $3 to a Street high of $58. Wlodarczak emphasized the undervalued nature of Comcast’s data network, which he believes is challenging to replicate in a timely manner and is future-proofed through relatively inexpensive upgrades. He anticipates a significant revaluation of Comcast shares by the end of 2024.
Disney, in its efforts to reshape its media business in 2023, resolved long-standing speculation about Hulu’s future. This strategic move followed the studio’s significant stock drop in 2022. CEO Bob Iger, more than a year into his return to the top post, has focused on cost-cutting and turning the conglomerate’s streaming platform profitable with a robust and diverse content offering. Despite a drop in Disney’s stock in 2023, it recovered and closed the year on an upswing. Investors are eagerly awaiting more evidence of the company’s turnaround, details on a standalone ESPN streaming service, Iger’s plans for a new “building phase,” and further clarity on potential deals.
As Disney finalizes the valuation for Hulu with Comcast, the studio is exploring various deal scenarios for different businesses, including its Indian media business and linear TV assets.
Looking ahead to 2024, there are still outstanding questions for Disney, according to analyst Jessica Reif Ehrlich. The fiscal first quarter seems to be a continuation of recent trends, including film disappointments relative to expectations. Despite this, Reif Ehrlich maintains her “buy” rating and $110 price target on Disney stock, citing the company’s collection of best-in-class premier assets.
On the other hand, Fox Corp., led by Lachlan Murdoch, experienced a slight decline over the past 12 months, ending the year down just under 3 percent at $27.65. While some highlight Fox News leading in primetime and total day news ratings, others foresee challenges, with analysts noting pressures on Fox News viewership and potential challenges for Fox Sports from the ESPN streaming service planned for 2024.
In its inaugural year under CEO Kristin Dolan, AMC Networks recently experienced a return to streaming subscriber growth. Despite facing challenges in the advertising market and other headwinds during its corporate turnaround under Dolan, AMC Networks closed 2023 with a 20 percent year-to-date gain, with shares ending Friday at $18.79.
Lionsgate emerged as one of the major Hollywood gainers of the year, concluding Friday’s trading session at $10.90, marking a 93 percent increase from the end of 2022. The company sealed various deals in 2023, including the acquisition of Entertainment One and the announcement of plans to launch Lionsgate Studios as a publicly-traded, standalone entity separate from Starz. Lionsgate also crossed the billion-dollar mark at the worldwide box office with successful releases from key franchises like The Hunger Games, John Wick, and Saw.
Endeavor’s significant deal in September involved combining its mixed martial arts business UFC with sports entertainment powerhouse WWE, contributing to a 5.5 percent increase in Endeavor’s stock, which closed 2023 at $23.73.
In the exhibition space, the performance of blockbusters like “Barbenheimer” and disappointments like The Flash, coupled with the impact of writers’ and actors’ strikes on the 2024 theatrical slate, kept investors vigilant throughout the year. A late 2023 forecast suggested that the following year could witness the first post-pandemic era global box office revenue decline.
For cinema operator stocks, the outcomes varied. AMC Theatres-parent AMC Entertainment Holdings saw its shares plummet by 83 percent for the year, closing at $6.11, following CEO Adam Aron’s warning of “much collateral damage” from the Hollywood strikes. In contrast, Cinemark’s stock surged by 63 percent in 2023, closing at $14.09. Imax Corp., despite facing shareholder rejection of its proposal for a $124 million deal to acquire an additional stake in its Shanghai-based Imax China unit, ended the year with a 2.5 percent increase, closing Friday at $15.03.
Music and audio entertainment stocks presented a mixed picture as well. Warner Music shares showed a modest 2 percent gain, closing at $35.80. Universal Music Group’s Amsterdam-listed stock gained 13.5 percent, closing at $25.73. SiriusXM dropped by 6 percent, closing the year at $5.46, while iHeartMedia tumbled by 56 percent, closing at $2.67 on Friday.
However, Spotify, buoyed by Wall Street’s approval of its cost-cutting and profit-focused approach, emerged as one of the significant winners among media and entertainment stocks in 2023, surging by 139 percent to end the year at $187.91. The company’s foray into audiobooks has also received positive feedback from analysts.
Media technology stock Roku closely followed with a 125 percent gain for the year, closing at $91.66. Despite the rapid rise, some analysts, including Michael Nathanson and Robert Fishman of MoffettNathanson, downgraded Roku shares from “neutral” to “sell” in mid-December. Their report, titled “Too Much, Too Soon (Again),” highlighted concerns about the company’s share price nearly doubling to over $100 per share.