Sphere Entertainment Stock Soared This Week. Here’s Why. | The Motley Fool

Shares of Sphere Entertainment Co. (SPHR 6.45%) rose as much as 25% this week, according to data from S&P Global Market Intelligence. The upstart entertainment venue and owner of the Las Vegas Sphere, as well as regional sports networks, showed strong growth yet again in its latest earnings report, and a path to profitability. As of 1:46 p.m. ET on Friday, Sphere Entertainment was up 21.7% since last Friday’s close and 46% year-to-date.

Here’s why Sphere Entertainment stock popped this week.

Strong growth, beating expectations

In the fourth quarter of its fiscal year 2024, Sphere Entertainment’s revenue grew to $273.4 million, up from $129 million a year ago. Revenue from the MSG regional sports network actually declined slightly, so over 100% of the growth came from the Sphere entertainment venue. Revenue went from virtually zero a year ago to $151 million in the three months ending in June, which indicates how popular the venue has been since opening for commercial operations.

With unique music, lifestyle, and sporting events hosted at this circular video arena, there is plenty of demand for Sphere’s unique venue on the Las Vegas strip. It can charge a pretty penny for each event. For example, its Postcard From Earth event averaged over $1 million in average daily ticket sales. Not bad.

Earnings are negative today, with the consolidated business posting an operating loss of $71.4 million in the quarter. However, a lot of this is due to the depreciation and amortization from all the upfront costs of building the Las Vegas Sphere. Free cash flow has been trending in the right direction for multiple quarters, moving from close to $1 billion in annual burn to a loss of $284 million over the last 12 months. Investors should look for more improvement in the next few years.

Sphere Entertainment has a market cap of just $1.7 billion and generates over $1 billion in revenue that is growing quickly. If it can get to positive cash flow, there could be a lot of value to be had for shareholders of this stock.

Management is planning to open up more spheres in international markets. With only one sphere open today, the segment generates close to $500 million in annual sales (the rest from the regional sports networks). If it can open up just a few of these unique venues around the world, the segment could do billions in revenue.

Clearly, there is a lot of upside potential for this stock. But, the company is burning a lot of cash, which makes it risky. Investors who want a piece of the Sphere should make it a small position in their portfolios.