Has any sector of the economy been harder hit by the novel coronavirus pandemic than the entertainment industry? From live concerts to movie theatres, theme parks to sports arenas, entertainment has been devastated this year. Other than streaming services and podcasts, every facet of the entertainment industry has been brought to a virtual standstill by the global pandemic.
According to market research firm Ampere Analysis, the global film and television industry is projected to lose $160 billion over the next five years due to Covid-19. And that’s just movies and TV. The live concert industry is projected to lose $9 billion, professional sports is expected to lose $12 billion and amusement and theme parks are forecast to lose $18 billion as they shed more than 100,000 jobs.
Given the carnage that has been caused by production shutdowns, lock down orders and the inability of people to gather in large crowds, it is best for investors to steer clear of many entertainment stocks for the time being. The entire sector, except for streaming plays such as Netflix (NASDAQ:NFLX) and podcast companies such as Spotify Technology (NYSE:SPOT), should be viewed as untouchable until a vaccine against Covid-19 is widely available and people are again able to attend concert festivals, football games and sit together in public movie theaters.
Here we look at seven entertainment stocks that it would be best to avoid for now:
- Live Nation Entertainment (NYSE:LYV)
- AMC Theatres (NYSE:AMC)
- Six Flags (NYSE:SIX)
- Fox Corp. (NASDAQ:FOX)
- IMAX (NYSE:IMAX)
- Madison Square Garden Sports (NYSE:MSGS)
- SeaWorld Entertainment (NYSE:SEAS)
Entertainment Stocks to Avoid: Live Nation Entertainment (LYV)
Live Nation specializes in promoting live events, focusing on and music concerts. The company, which bought Ticketmaster in 2009 for $2.5 billion, has exclusive deals to promote the concert tours of major artists such as Madonna, U2 and Jay-Z. In normal times, Live Nation brings in more than $10 billion a year in revenue. But not this year.
During a second-quarter earnings call in August, Live Nation executives said they are burning through cash at a rate of $185 million per month, and could be completely out of cash in about 10 months. At this point the company says its just trying to make it to the expected return of live concerts in the summer of 2021. If there’s a silver lining for Live Nation its that live music fans are apparently holding onto tickets from postponed events, rather than seeking refunds. Its data shows that 86% of customers have held on to tickets to attend shows rescheduled for next year.
Year-to-date, LYV stock is down 33% at just over $50 a share. Probably best to avoid this stock until concerts and music festivals resume in earnest.
AMC Theatres (AMC)
Movie theatres are open again, but is anyone going? Not according to the latest box office numbers. The latest numbers show that the North American box office totaled just $13.2 million over the Sept. 18-20 weekend period, down 13% from the previous weekend’s total. In comparison, the U.S. and Canadian box offices hauled in $125.4 million during the same weekend of 2019. And the only Hollywood blockbuster currently in movie theatres, Tenet, has to date grossed only $36 million in the U.S. and Canada. Since Labor Day, 70% of U.S. movie theaters are estimated to have re-opened with social-distance seating. But the bottom line is that people are avoiding movie theatres in favor of streaming content at home.
With fears mounting of a second wave of Covid-19, it is doubtful that the situation for AMC Theatres will improve in the near-term. A recent survey by Morning Consult, which captured responses from 2,200 people between Sept. 10 and 13 indicated that only 18% of consumers feel comfortable returning to movie theatres.
This reality has been devastating to AMC stock, which seems to slump each Monday after the latest weekend box office numbers are published. On Sept. 21, the company’s share price sank 7% on news of the latest receipts. The company was dealt another blow when Disney (NYSE:DIS) announced that it is pushing back the release of Marvel blockbuster Black Widow from its original November release date to next year. Year-to-date, the shares are down 38% and now trading as a penny stock at $4.78 a share.
Six Flags (SIX)
Six Flags is an amusement park operator. Full stop. The company operates 26 amusement and water parks in the U.S., Canada and Mexico. That’s it. This is not a well diversified company. Today, 94% of Six Flags revenue comes from ticket sales to its parks and merchandise and food purchased by patrons while visiting the parks in-person. Compare that to rival Disney, which gets less than 40% of its revenue from its parks and resort locations.
With all of its parks shutdown, Six Flags is having a difficult time. In its most recent second quarter results, the company reported that its revenue plunged 96% year-over-year. The results are especially damaging considering that Six Flags parks are also a seasonal business and the company earns three-quarters of its revenue in the spring and summer months. There aren’t a lot of people riding roller coasters in the winter, especially up north.
Six Flags literally won’t have a chance to start recovering in earnest from this year’s cataclysmic downturn until spring 2021, when, hopefully, a vaccine against Covid-19 will be available. In the meantime, Six Flags is adding more debt to its heavily leveraged balance sheet. The company had $2.3 billion of debt at the end of its first quarter, which doesn’t include $725 million of secured notes issued at the end of April.
Also, Six Flags is extending season-passes into 2021 for the days lost this year, a move that, while generous, will negatively impact its results next year. SIX stock is down 60% year-to-date and currently trades at just over $21 a share.
You know it’s bad when Fox Corp. Chairman Rupert Murdoch and his Chief Executive Officer son Lachlan Murdoch are taking pay cuts. Mind you, their pay still totaled $33.98 million for Rupert and $29.15 million for Lachlan. But it’s a gesture on their part nonetheless.
In the past year, the company has sold its movie studio, 21st Century Fox, to Disney, leaving it with an entertainment stable that includes Fox News Channel, Fox Sports and the Fox broadcast network. The pandemic has been hard on the company’s advertising revenue. Recently, the corporation announced a fresh round of layoffs at Fox News amid a reorganization of the network. This comes after similar layoffs at Fox Sports during the summer.
But the company is not going down without a fight. Fox is reportedly willing to spend upwards of $2 billion to retain its broadcasting rights to Sunday NFL football, effectively double what it was paying previously. That’s a hefty sum and speaks to the desire of the company to keep the ratings and advertising cash cow that is Sunday football. Whether the NFL can help turnaround FOX’s stock price remains to be seen. Year-to-date, the company’s share price is down 33% and shows no real signs of rebounding — even with the NFL season now in full swing.
IMAX, which shows select movies on giant screens, is struggling with the same audience decline as the aforementioned AMC Theatres. Its 950 theatres have largely sat idle since the pandemic hit in March and the impact has been felt deeply at the company. On July 28, IMAX reported its latest quarterly results and they were not pretty. Revenue was down 91.5% year-over-year and the company had a negative return on equity of 6.88% and a negative net margin of 18.91%.
With a majority of people unwilling to sit through a regular movie at the present time, it is even less likely that they’ll got to a specialty IMAX film. The company’s performance has also been hard hit by the fact that its screens in museums that show educational films have also been shuttered due to Covid-19. IMAX stock is down 45% year-to-date. How the company recovers from the doldrums of the pandemic remains to be seen.
Madison Square Garden Sports (MSGS)
On paper, Madison Square Garden Sports looks great. The company owns the NBA’s New York Knicks basketball team and the NHL’s New York Rangers hockey team. Both are classic franchises in the major market of New York City. Combined, the Knicks and Rangers are worth an estimated $6.25 billion. But with no fans in the stands at sporting events and with truncated basketball and hockey seasons, the company is struggling.
In August, Madison Square Garden Sports reported a fourth quarter that showed disappointing results across the board. The company reported a 17% decrease in revenues as compared to the prior year and an operating loss of nearly $100 million. Until sports resumes a regular schedule and fans can return, it will be difficult for Madison Square Garden Sports to turn things around. MSGS stock is now trading at less than half its 52-week high at $144.31 a share.
SeaWorld Entertainment (SEAS)
Like Six Flags, SeaWorld Entertainment is struggling with park closures. In early September, the company announced plans to permanently layoff furloughed employees at its 13 theme parks and corporate headquarters. In all, 1,900 employees received pink slips as the company tries to survive the pandemic. While many SeaWorld properties are open now, most of them are operating at just 30% of their normal capacity.
While some park locations have announced special events for the fall and winter, including Halloween and Christmas activities, they are unlikely to have a significant impact. A poll by the Orlando Business Journal of 421 respondents in September found that 56.1% would not visit a theme park any time soon. SEAS stock price reflects this reality, trading at $19.11 a share, half its level at the start of 2020.
On the date of publication, Joel Baglole held shares of DIS.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.