TSX Composite Index (TXCX) Quote – Press Release

Content production and distribution company Sphere Entertainment (NYSE:SPHR) reported results in line with analysts’ expectations in Q2 CY2024, with revenue up 112% year on year to $273.4 million. It made a GAAP loss of $1.31 per share, down from its profit of $15.24 per share in the same quarter last year.

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Executive Chairman and CEO James L. Dolan said, “Fiscal 2024 marked the opening of Sphere in Las Vegas and a new chapter for our Company. Sphere has already welcomed millions of guests, world-renowned artists and numerous global brands. We are confident that we are on the right path to execute on our vision for this next-generation medium.”

Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE:SPHR) hosts live entertainment events and distributes content across various media platforms.

Leisure Facilities

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from “things” to “experiences”. Leisure facilities seek to benefit but must innovate to do so because of the industry’s high competition and capital intensity.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Unfortunately, Sphere Entertainment’s 3.7% annualized revenue growth over the last five years was weak. This shows it failed to expand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Sphere Entertainment’s annualized revenue growth of 9.9% over the last two years is above its five-year trend, but we were still disappointed by the results. Note that COVID hurt Sphere Entertainment’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

Sphere Entertainment also breaks out the revenue for its most important segments, Sphere and MSG Networks, which are 55.3% and 44.7% of revenue. Over the last two years, Sphere Entertainment’s Sphere revenue (live events and advertising) averaged 15,200% year-on-year growth. On the other hand, its MSG Networks revenue (content distribution) averaged 7.4% declines.

This quarter, Sphere Entertainment’s year-on-year revenue growth of 112% was magnificent, and its $273.4 million of revenue was in line with Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 10.5% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Sphere Entertainment’s operating margin has been trending up over the last year, but it still averaged negative 38.4%. Its large expense base and inefficient cost structure mean it still sports inadequate profitability for a consumer discretionary business.

This quarter, Sphere Entertainment generated an operating profit margin of negative 26.1%, up 28.4 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

Key Takeaways from Sphere Entertainment’s Q2 Results

We were impressed by how significantly Sphere Entertainment blew past analysts’ EPS expectations this quarter, which was a key debate given the capital intensity of its Sphere segment. On the other hand, its MSG Networks segment unfortunately underperformed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 12.2% to $45.79 immediately following the results.

Sphere Entertainment may have had a good quarter, but does that mean you should invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.