Netflix, Spotify, Lionsgate Stocks Jump in 2023, While Disney Ekes Out a Gain
In 2022, the stocks of streaming giant Netflix and most Hollywood giants fell to Earth. In 2023, major media and tech players had another grim year with investors as faith in streaming took another hit, even if their share prices ended the year on a roll, helped by renewed M&A talk.
Netflix soared back to subscriber growth with its ad-supported streaming offering and its stock was lifted back to health in 2023. And music streamer Spotify, Roku and Lionsgate were among the other big winners of the year, handily outperforming the 24.3 percent gain in the broad-based S&P 500 stock index to escape the carnage in much of the media sector.
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Most old guard Hollywood players didn’t match that performance as those with legacy linear TV networks especially faced a roller coaster ride amid digital competition. But investors cheered as biggies like Disney, with CEO Bob Iger back at the helm, rose from the dust of 2022 to register a slight gain for the year.
Shares of Netflix, led by executive chairman Reed Hastings and co-CEOs Ted Sarandos and Greg Peters, ended trading on Friday at $486.88, up 65 percent from its 2022 closing price of $294.88.
It was a rougher ride for large-cap entertainment conglomerates elsewhere for much of 2023 as their stocks got rocked by the Hollywood writers and actors strikes on top of perennial headaches like cord-cutting and weakness in the advertising market — a key revenue driver for the media and entertainment industries.
While many sector giants narrowed their streaming losses, investors are still waiting for sustained profitability to regard them as destination stocks, especially as 2024 emerges as the year of the streaming bundle. To that end, the Hollywood majors have trimmed content budgets and looked to pay down debt to boost their growth prospects.
Against that backdrop, more confidence in the streaming arena and a return of deal chatter late in the year — which led some to predict megadeal announcements over the coming 12-18 months — helped boost a host of media and tech stocks. Already at the year-end, Warner Bros. Discovery nabbing Turkish streamer BlueTV, Archetype buying youth-skewing financial news streamer Cheddar from Altice USA and Lionsgate as expected closing its eOne acquisition and increasing its majority stake in 3 Arts Entertainment stirred corporate deal headlines.
Warner Bros. Discovery, the one Hollywood giant that was profitable in its streaming business through the first nine months of 2023, still ended the year amid uncertainty. The studio, despite heavy cost-cutting led by CFO Gunnar Wiedenfels, was hit by year-end news that its CEO David Zaslav has held exploratory talks about a possible deal for Paramount Global, which is reportedly exploring a sale. Despite that question mark, WBD shares ended the year up 20 percent percent, with a close Friday at $11.38, as bullish investors lauded increased cost savings from the mega-merger that created the giant, streaming profits and the success of Barbie.
Bank of America analyst Jessica Reif Ehrlich in November reiterated her “buy” rating on the stock, but lowered her price target by $4 to $17 in a report entitled “Transitions Are Hard.” “While we acknowledge the heavy lifting of WBD management over the last 12-18 months, it is becoming increasingly difficult to handicap the trajectory of linear advertising and whether these challenges are more secular versus cyclical,” she explained.
Entertainment and consumer electronics conglomerate Sony Group Corp. — with Sony Pictures as a key driver of earnings for a studio without a costly streaming platform to launch and scale with pricey content — did similarly well, posting a 24 percent stock gain over the latest year to close at $94.69.
Wrapping up 2023 with an even bigger gain was NBCUniversal owner Comcast, whose stock ended the year just over 25 percent higher to close Friday at $43.85. Among topics in investors’ focus were a forecast for declining losses at streamer Peacock, which hit 30 million paying subscribers at the end of 2023, with Comcast looking to only continue to scale the marquee streaming platform.
The NBCUniversal parent also unveiled a deal to sell its minority stake in streamer Hulu to Disney for $8.61 billion, with both companies in the process of figuring out a fair market value for the final sale price Disney will pay.
Pivotal Research Group analyst Jeff Wlodarczak boosted his price target on Comcast shares, which he rates a “buy,” in mid-December by $3 to a Street high of $58. “We believe that investors fundamentally undervalue Comcast’s data network which is very hard to replicate in a timely fashion and is future-proofed via relatively inexpensive upgrades,” he wrote. “The risk/reward in Comcast shares appears very attractive.” His conclusion: “We expect shares to revalue dramatically higher from current levels by the end of ’24.”
Ending long speculation over the future of Hulu was only one corporate move by Disney as it dramatically reshaped its media business in 2023. That followed the studio’s biggest stock drop in decades in 2022. CEO Bob Iger, more than a year after his return to the top post, has been working to put the conglomerate on a positive path via cost cuts and a focus on turning its streaming platform profitable on the strength of a strong and diverse content offering.
All told, the Disney stock dropped in 2023 before recovering and closing the year on an upswing. Investors are still waiting for more evidence that the company’s recent turnaround will continue, more color on the plan for a standalone ESPN streaming service, Iger’s plans for a new “building phase” and also for more clarity on the deal front.
After all, as Disney finalizes a valuation for Hulu with Comcast, the studio is considering a host of deal scenarios for various businesses, including its Indian media business and linear TV assets.
“Heading into calendar year 2024, we believe there remain outstanding questions for Disney,” Reif Ehrlich wrote in a Dec. 22 report entitled “WISHing for a better Box Office in 2024.” “The fiscal first quarter appears to be a continuation of recent trends. This includes film, where the quarterly slate (Wish and The Marvels) was a disappointment relative to expectations.” But the expert reiterated her “buy” rating and $110 price target on the stock, emphasizing: “Disney has a collection of best-in-class premier assets (in content/IP and parks).”
Meanwhile, Fox. Corp., led by Lachlan Murdoch after his father Rupert Murdoch moved to the role of chairman emeritus, lost ground over the past 12 months, ending the year down just under 3 percent to close at $27.65. Bulls mention that Fox News leads primetime and total day news ratings, but others see challenges ahead.
Wells Fargo analyst Steven Cahall, for one, downgraded the stock in July from “equal weight” to “underweight.” “Fox’s earnings are mostly Fox News earnings, and Fox News is facing viewership and share pressures,” he argued. “With ecosystem risks also elevated we find our estimate outlook more negative and below the Street.” Experts also see challenges for Fox Sports from the ESPN streaming service planned for 2024.
Among smaller entertainment companies, AMC Networks, in its first year under CEO Kristin Dolan, recently posted a return to streaming subscriber growth. But the traditional cable channel operator with an expanding array of streaming platforms faces a challenging advertising market and other headwinds as it attempts a corporate turnaround under Dolan. Stock in AMC Networks wrapped up 2023 with a 20 percent year-to-date gain as shares closed Friday at $18.79.
Meanwhile, Lionsgate was one of the biggest Hollywood gainers of the year, closing Friday’s trading session at $10.90, up 93 percent compared to the end of 2022. The company ended 2023 with a deal flurry, closing its acquisition of Entertainment One and unveiling plans to launch Lionsgate Studios as a publicly-traded, standalone company separate from Starz. On the film front, Lionsgate surpassed the billion-dollar mark at the worldwide box office after rolling out successful new installments of key franchises like The Hunger Games, John Wick and Saw.
2023 also saw the close of various deals. Among them was Endeavor’s September transaction to combine its mixed martial arts business UFC with sports entertainment powerhouse WWE. Endeavor’s stock ended the year 5.5 percent higher, with shares closing 2023 at $23.73.
In the exhibition space, the box office performance of such juggernauts as “Barbenheimer” and such disappointments as The Flash, as well as the writers and actors strikes’ impact on the 2024 theatrical slate kept investors on their toes for much of the year. And a forecast late in 2023 predicted that next year could mark the first time in the post-pandemic era that global box office revenue suffers a year-over-year downturn.
What did all this mean for cinema operator stocks in the past year? The picture was mixed. AMC Theatres-parent AMC Entertainment Holdings saw its shares tank as they closed down 83 percent for the year weeks to close $6.11 after CEO Adam Aron warned of “much collateral damage” from the Hollywood strikes. In contrast, the stock of Cinemark jumped 63 percent in 2023 to close at $14.09. And Imax Corp., whose proposal for a $124 million deal to acquire a 28.5 percent stake in its Shanghai-based Imax China unit that it does not already own was voted down by shareholders in October, ended the year with its shares up 2.5 percent to close Friday at $15.03.
Music and audio entertainment stocks were a similarly mixed bag. Warner Music shares eked out a 2 percent gain on the year to close at $35.80, the Amsterdam-listed stock of Universal Music Group gained 13.5 percent to end 2023 at $25.73, while satellite radio giant SiriusXM dropped 6 percent after the closing the year at $5.46 and iHeartMedia tumbled 56 percent to close at $2.67 on Friday.
However, Spotify, driven by Wall Street plaudits for its cost cuts and profit focus, was one of the big winners among media and entertainment stocks in 2023, jumping 139 percent to end the year at $187.91. Its audiobooks push has also been well-received by analysts.
Media technology stock Roku was close behind with a 125 percent gain for the year amid a close of $91.66. Some analysts are warning that its run-up has been too speedy. MoffettNathanson’s Michael Nathanson and Robert Fishman downgraded Roku shares from “neutral” to “sell” in mid-December, even while raising their price target by $2 to $66. In a report entitled “Too Much, Too Soon (Again),” they explained: “Heading into Roku’s third-quarter 2023 earnings, we decided to take our ‘sell’ call off the stock as we believed that the company was getting more focused on efficiency and margin expansion. Hard to believe, but at over $100 per share now, Roku’s share price has nearly doubled since then.”
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