The entertainment industry is undergoing significant transformations, propelled by the rise of social video platforms, the abundance of specialized streaming services, and the widespread embrace of cloud gaming.
Therefore, investors could consider top entertainment stocks Electronic Arts Inc. (EA), Spotify Technology S.A. (SPOT), and Lee Enterprises, Incorporated (LEE) to invest this month.
The demand for enhanced streaming services is rising due to the popularity of high-quality videos, driving growth in the global media and entertainment content market. The media and entertainment market was estimated at $27.72 billion this year. The market is expected to expand at a CAGR of 7.8% to reach $40.36 billion by 2028.
Moreover, technological advancements and changing consumer habits are reshaping the media and entertainment industry. The rise of OTT streaming and strategic acquisitions are expanding the horizons of the industry.
Total revenue in the global entertainment market is expected to grow at a CAGR of 11.4% to reach $53.13 billion by 2027.
In addition, the gaming industry has a global audience, and access to games has expanded with the rise of online platforms. Also, technological advancements, such as improved graphics, virtual reality, and augmented reality, have enhanced the gaming experience. As a result, the global toys and games market is projected to expand at a CAGR of 9.9% till 2028.
Considering these conducive trends, let’s look at the fundamentals of the three best entertainment stocks.
Electronic Arts Inc. (EA)
EA is a global gaming company known for popular franchises like Battlefield, The Sims, and FIFA. They develop, market, and distribute games across various platforms, utilizing digital and retail channels for sales.
On November 23, EA announced UEFA EURO 2024 integration into EA SPORTS FC 24, EA SPORTS FC Mobile, and EA SPORTS FC Online as a free in-game update arriving in the summer of 2024. The update coincides with the tournament kick-off and offers exclusive UEFA EURO 2024 Ultimate Team Player items for players.
EA SPORTS will also host the official eEURO esports program featuring top EA SPORTS FC players representing national football teams.
EA’s trailing-12-month gross profit margin of 75.77% is 54.9% higher than the industry average of 48.90%. Its 20.01% trailing-12-month EBIT margin is 154.3% higher than the 7.87% industry average.
The company declared a quarterly cash dividend of $0.19 per share of the company’s common stock, payable on December 20, 2023. The company pays $0.76 annually as dividends, which translates to a yield of 0.55% on the current market price,
For the six months ended September 30, 2023, EA's net revenue and gross profit increased 4.5% and 4.1% year-over-year to $3.84 billion and $3.01 billion, respectively. The company generated operating income and net income of $919 million and $801 million, up 5.9% and 31.3% from the prior year period, respectively. Moreover, its EPS increased 34.4% year-over-year to $2.93.
For the fiscal year ending March 2024, the company anticipates net revenue in the range of $7.30 billion to $7.70 billion. Net income is projected to be approximately $1.12 billion to $1.27 billion, leading to EPS of around $4.10 to $4.66. Operating cash flow for the fiscal year is estimated to fall between $1.95 billion and $2.10 billion.
Street expects EA's revenue and EPS to grow 2.1% and 16.4% year-over-year to $2.39 billion and $2.91 for the third quarter ending December 2023, respectively. EA’s shares have gained 24.8% over the past nine months and 14.3% over the past three months to close the last trading session at $137.76.
EA’s POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EA has a B grade for Sentiment and Quality. Within the B-rated Entertainment - Toys & Video Games industry, it is ranked first out of 18 stocks.
In addition to the POWR Ratings stated above, one can access EA’s additional Growth, Value, Momentum, and Stability ratings here.
Spotify Technology S.A. (SPOT)
Based in Luxembourg, Luxembourg, SPOT operates as a global audio streaming service with two segments: Premium (ad-free access to music and podcasts) and Ad-Supported (access with ads). The company also provides support services such as sales, distribution, and marketing.
SPOT’s trailing-12-month asset turnover ratio of 1.67x is 225% higher than the industry average of 0.52%. Its 14.18 trailing-12-month cash per share is 854.1% higher than the 1.49 industry average.
In the fiscal third quarter, which ended September 30, 2023, SPOT generated revenue and gross profit of €3.36 billion ($3.65 billion) and €885 million ($962.78 million), up 10.6% and 18% from the previous year's quarter, respectively.
Net income attributable to owners of the parent amounted to €65 million ($70.71 million), compared to a net loss of €166 million ($180.59 million) in the year-ago quarter. Moreover, SPOT reported EPS of €0.33, compared to the previous-year quarter loss per share of €0.99.
SPOT’s revenue is expected to grow 17.6% year-over-year to $4.05 billion for the fourth quarter ending December 2023. Its EPS is expected to be $0.33 for the same quarter.
SPOT’s shares increased 127.4% over the past year and 128.9% year-to-date to close the last trading session at $180.69.
SPOT’s POWR Ratings reflect this sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
SPOT has a B grade for Growth and Sentiment. Within the B-rated Entertainment - Radio industry, it is ranked first among six stocks.
Click here for SPOT’s additional Value, Momentum, Stability, and Quality ratings.
Lee Enterprises, Incorporated (LEE)
LEE focuses on providing local news, advertising, and digital services. The company offers print and digital editions of newspapers, web hosting, content management, advertising, and marketing services. It also provides digital publishing solutions and operates in commercial printing and distribution.
LEE’s trailing-12-month gross profit margin of 57.98% is 18.6% higher than the industry average of 48.90%. Its 0.95x trailing-12-month asset turnover ratio is 84.4% higher than the 0.52x industry average.
For the third quarter that ended June 25, 2023, LEE's total operating revenue stood at $171.31 million. The company achieved operating income of $12.21 million, up 89.6% year-over-year. Its adjusted EBITDA grew 1.2% from the previous year's quarter to $23.24 million. Moreover, LEE’s EPS amounted to $0.25, compared to a loss per common share of $0.05 in the same quarter the previous year.
For the fiscal year 2023 outlook, the company anticipates total digital revenue between $270 million and $285 million, indicating a year-over-year growth of 13% to 19%. The number of digital-only subscribers is projected to increase by 19% year-over-year, reaching 632,000. Adjusted EBITDA is expected to be in the range of $85 million to $90 million.
Analysts expect LEE’s EPS to grow 108.9% year-over-year to $1.88 for the fiscal year ending September 2024. Its revenue is expected to be $651.10 million. The stock has gained 24.9% over the past month and marginally intraday to close the last trading session at $11.40.
LEE’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
LEE has a B for Value, Stability, Sentiment, and Quality. Within the A-rated Entertainment - Publishing industry, it is ranked first of eight stocks.
To see LEE’s additional POWR Ratings for Growth and Momentum, click here.
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EA shares were trading at $137.32 per share on Monday afternoon, down $0.44 (-0.32%). Year-to-date, EA has gained 13.09%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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