Streaming stocks are facing macroeconomic headwinds as the Federal Reserve aggressively raised interest rates to bring prices under control. As rates have risen, fears of a recession in 2023 have gripped the market, and turmoil in several sectors has emerged.
Therefore, fundamentally weak streaming stocks Warner Bros. Discovery, Inc. (WBD), Paramount Global (PARA), and World Wrestling Entertainment, Inc. (WWE) might be best avoided.
According to the February inflation report from the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) increased by 6% year-over-year, steadily declining from its peak of more than 9%. The bankruptcies of Silicon Valley Bank and Signature Bank are causing people to worry about a "hard landing" even though inflation is continuously dropping.
As inflation continues to take a bite out of Americans’ pandemic savings, people are spending more on necessities and steering away from entertainment pleasures. Horizon Media's findings reported that 59% of highly price-sensitive participants are cutting costs, up from 55% last year.
Overall, ad-supported subscriptions have had a seven-point increase as people look to save money while getting more entertainment choices. Furthermore, streaming services seem to have struggled so far this year to capture viewers' attention with new hits.
Under pressure to produce profits, traditional companies with less scale are expected to sell or combine with other media entities in the next few years to compete with big players.
Although the entertainment industry has begun to bounce back, Michael Furtschegger, Global Head of Entertainment at Allianz Global Corporate & Specialty (AGCS), believes it is not out of the woods yet. Citing the economic headwinds, he said, “Our entertainment clients are feeling the effects of inflation, with increased production and live-event costs.”
Given the industry’s negative impact, investors might avoid fundamentally weak streaming stocks, WBD, PARA, and WWE, given their bleak growth prospects.
Warner Bros. Discovery, Inc. (WBD)
WBD is a global media and entertainment company. It operates through three segments: the Studios segment, producing and releasing feature films for initial exhibition in theaters; the Network segment comprising domestic and international television markets; and the DTC segment, offering premium pay-tv and streaming services.
WBD’s trailing-12-month net income margin is negative 21.80% compared to the 3.05% industry average. Likewise, its trailing-12-month EBIT margin is negative 6.67% compared to the 8.43% industry average. Furthermore, the stock’s 39.70% trailing-12-month gross profit margin is 20.1% lower than the industry average of 49.71%.
In terms of forward EV/Sales, WBD’s 1.95x is 4.1% higher than the 1.87x industry average. Likewise, its 110.91x forward EV/EBIT is 595% higher than the 15.96x industry average.
WBD’s total costs and expenses increased 381.6% year-over-year to $12.90 billion for the fourth quarter that ended December 31, 2022. Net loss available to WBD came in at $2.10 billion, compared to a net profit of $38 million in the prior-year period, while its loss per share came in at $0.86, compared to an EPS of $0.08 in the year-ago period.
Analysts expect WBD’s EPS for the quarter ending June 30, 2023, to be negative $0.23 and remain negative for the fiscal year 2023. It failed to surpass the revenue estimates in three of the trailing four quarters. Over the past year, the stock has lost 45.4% to close the last trading session at $14.53.
WBD’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Among the 16 stocks in the F-rated Entertainment - Media Producers industry, it is ranked #14. WBD is also rated a D in Stability, Momentum, Growth, Sentiment, and Quality. Click here to see WBD’s rating for Value.
Paramount Global (PARA)
PARA operates as a media and entertainment company worldwide. The company operates through TV Media; Direct-to-Consumer; and Filmed Entertainment segments.
PARA’s trailing-12-month gross profit margin and EBITDA margin of 34.19% and 10.65% are 31.2% and 40.9% lower than the 49.71% and 18.02% industry averages, respectively.
In terms of forward EV/EBITDA, PARA’s 11.33x is 34.4% higher than the 8.43x industry average. Likewise, its 25.38x forward non-GAAP P/E is 59% higher than the 15.96x industry average.
For the fourth quarter that ended December 31, 2022, PARA’s operating income decreased 93.2% year-over-year to $182 million. The company’s attributable net earnings decreased 99% year-over-year to $21 million. Also, its net earnings per share came in at $0.01, down 99.7% year-over-year.
The consensus revenue estimate is $7.55 billion for the second quarter (ending June 30, 2023), representing a 3% decrease year-over-year. The consensus EPS estimate of $0.18 for the current quarter (ending March 31, 2023) indicates a 70.3% year-over-year decline. It missed the revenue estimates in three of four trailing quarters.
Over the past year, the stock has plunged 44.9% to close the last trading session at $20.74.
PARA’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. It has an F grade for Sentiment and a D for Growth, Momentum, and Stability.
PARA is ranked #11 of 16 stocks in the same industry. To see additional POWR Ratings of PARA for Value and Quality, click here.
World Wrestling Entertainment, Inc. (WWE)
WWE is an integrated media and entertainment company that engages in the sports entertainment business in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. It operates through three segments: Media; Live Events; and Consumer Products.
WWE’s trailing-12-month gross profit margin is 43.46%, 12.6% lower than the 49.71% industry average.
In terms of forward EV/Sales, WWE’s 4.78x is 155.3% higher than the 1.87x industry average. Likewise, its 19.34x forward EV/EBIT is 21.2% higher than the 15.96x industry average.
For the fourth quarter that ended December 31, 2022, WWE’s operating income decreased 22.2% year-over-year to $62.70 million. The company’s adjusted net income decreased 19% year-over-year to $45.10 million, while its adjusted EPS came in at $0.52, down 22.4% year-over-year.
Street expects WWE’s revenue to decrease 12.1% year-over-year to $292.93 million for the fiscal first quarter (ending March 31, 2023). Its EPS is expected to decrease 46.5% year-over-year to $0.41 in the same quarter.
The stock has declined 2.5% over the past month to close the last trading session at $84.35.
It’s no surprise that WWE has an overall D rating, which equates to Sell in our POWR Ratings system. It has a D grade for Growth, Value, Momentum, and Sentiment. Within the same industry, it is ranked #10. Click here to see the additional POWR Ratings for WWE (Stability and Quality).
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WBD shares were trading at $13.96 per share on Friday afternoon, down $0.57 (-3.92%). Year-to-date, WBD has gained 47.26%, versus a 3.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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