Despite macroeconomic challenges, the entertainment industry is set for strong growth due to the rise of social video platforms, the availability of specialized streaming services, and the increasing popularity of cloud gaming.

Although the industry is expected to grow in the coming years, not every stock is well-positioned to benefit. After assessing The Liberty SiriusXM Group (LSXMK) and Spotify Technology S.A. (SPOT), I think it could be wise to add SPOT to one’s watchlist for attractive entry points, while LSXMK is best avoided now.

Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.

The entertainment radio sector faces hurdles despite expected growth, with consumer preferences for cost, content, and convenience influencing market dynamics. Engaging younger audiences and providing diverse content present opportunities. Moreover, innovations in podcasts and audiobooks and radio's appeal in developing markets contribute to the industry’s growth.

Technological advancements and evolving consumer habits are reshaping the media and entertainment sector, with the rise of OTT streaming and strategic acquisitions broadening its horizons. The global entertainment market is set to grow at a CAGR of 11.4% to reach $53.13 billion by 2027.

Moreover, the entertainment content market is expected to reach $40.36 billion by 2028, registering a CAGR of 7.8%.

Given this backdrop, let’s take a look at the fundamentals of the featured stocks from the Entertainment - Radio industry, starting with the one ranked lower from the investment point of view.

Stock #2: The Liberty SiriusXM Group (LSXMK)

LSXMK engages in the entertainment business in the United States and Canada. It features music, sports, entertainment, comedy, talk, news, traffic, weather channels, podcasts, and infotainment services through proprietary satellite radio systems, as well as streamed through applications for mobile and home devices and other consumer electronic equipment.

LSXMK’s 0.30x trailing-12-month asset turnover ratio is 40.6% lower than the 0.50x industry average.

For the third quarter that ended September 30, 2023, LSXMK’s revenue decreased 0.4% year-over-year to $2.27 billion. Its net income came in at $363 million and $0.09 per share. However, the company’s free cash flow decreased 13.1% over the prior-year quarter to $291 million.

Analysts expect LSXMK’s EPS for the quarter ended December 31, 2023, to decrease 31.2% year-over-year to $0.53. Its revenue for the fiscal year ended December 31, 2023, is expected to decrease 0.2% year-over-year to $8.98 billion. It failed the consensus EPS in three of the trailing four quarters. Over the past year, LSXMK’s stock has declined 25.1% to close the last trading session at $30.38.

LSXMK’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a D grade for Growth, Sentiment, and Quality. It is ranked last out of 5 stocks in the B-rated Entertainment - Radio industry. Beyond what we stated above, we have also given LSXMK grades for Value, Momentum, and Stability. Get all LSXMK ratings here.

Stock #1: Spotify Technology S.A. (SPOT)

Based in Luxembourg, Luxembourg, SPOT and its subsidiaries provide audio streaming services worldwide. They operate through two segments: Premium and Ad-Supported.

In terms of the trailing-12-month asset turnover ratio, SPOT’s 1.67x is 235.5% higher than the 0.50x industry average. However, its 0.08% trailing-12-month Capex/Sales is 98.1% lower than the 4.14% industry average. Moreover, the stock’s 25.69% trailing-12-month gross profit margin is 47.7% lower than the 49.14% industry average.

For the fiscal third quarter, which ended September 30, 2023, SPOT revenue increased 10.6% from the previous year’s quarter to €3.36 billion ($179.75 billion). Its gross profit came in at €885 million ($958.1 million), up 18% year-over-year.

For the same quarter, its net income attributable to owners of the parent came in at €65 million ($70.38 million), compared to a net loss of €166 million ($179.75 million) in the year-ago quarter. Moreover, EPS stood at €0.33, compared to the previous-year quarter loss per share of €0.99.

Street expects SPOT’s revenue for the quarter ending December 31, 2023, to increase 17.2% year-over-year to $4.03 billion. On the other hand, its EPS for the same quarter is expected to remain negative. It failed the Street EPS in three of the trailing four quarters. Over the past year, the stock has gained 115.8% to close the last trading session at $218.61.

SPOT’s POWR Ratings reflect uncertainty. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.

It has a C grade for Value, Momentum, Stability, and Quality. It is ranked #2 in the same industry. To see SPOT’s ratings for Growth and Sentiment, click here.

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SPOT shares rose $2.91 (+1.33%) in premarket trading Tuesday. Year-to-date, SPOT has gained 17.61%, versus a 3.15% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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