The former Sphere venue has quickly become a must-see Las Vegas attraction, but some analysts don't believe the multi-use spectacular has a viable business model. Benchmark downgraded Sphere Entertainment Co. to “sell” on Tuesday (September 3) with a $40 price target, sending the stock down 4.4% to $44.55.
Benchmark downgraded the stock due to concerns about the company's “scalability, high production costs and possibly subdued earnings prospects,” the Benchmark analyst wrote. Mike Hickey in an investor note. “A weakened consumer environment may negatively impact their non-gaming Las Vegas entertainment business, while MSG Networks faces significant debt maturity challenges.” The MSG Networks division of Sphere Entertainment Co. operates local sports networks and streaming platform MSG+.
Sphere Entertainment's downgrade came on a rough day for stocks in general. A handful of music companies had similar losses on Tuesday: Reservoir Media and SiriusXM fell 5.2%, Spotify fell 4.2%, Madison Square Garden Entertainment fell 4.0% and iHeartRadio lost 3.9% . The tech-heavy Nasdaq composite lost 3.3% and the S&P 500 fell 2.1%.
Sphere Entertainment posted a net loss of $201 million on revenue of $1.03 billion in the fiscal year ended June 30. Hosting residencies from U2, Phish and Dead & Company, the venue itself brought in $489.4 million in its first three full quarters, with the film Postcard from Earth earning more than $300 million in “high margin” revenue by opening in October 2023. The Sphere also expanded into corporate and sporting events by hosting Hewlett Packard Enterprise and the NHL Draft.
The stunning $2.3 billion venue has “the potential to change the entertainment landscape for artists, guests and partners,” CEO James Dolan he said during the company's Aug. 14 earnings call. “Fully realizing that vision will take time, but we're learning every day how to optimize Sphere's operating model.” Dolan highlighted how the company is learning to increase its use of space to hold different types of events and multiple events in a single day.
After Tuesday's decline, Sphere Entertainment's share price is up 31.1% year-to-date.
