On Thursday, Morgan Stanley maintained its Equalweight rating on Sphere Entertainment (NYSE: SPHR) stock, with a steady price target of $45.00. The firm's assessment comes in the wake of Sphere Entertainment's new Las Vegas show, which has not met performance expectations. The analyst pointed out that the second year at the Las Vegas Sphere commenced with revenues falling short of projections due to the lackluster performance of the new "V-U2" immersive show.
The analyst noted that the company's earnings forecast has been lowered as a result of the underwhelming show. However, this decrease is balanced by the expectation of a substantial forgiveness of debt related to Networks' term loan, which is due to mature on October 11. Sphere Entertainment's financial outlook anticipates a reduction in year-over-year revenues for the second and third fiscal quarters of 2025, with hopes that a third show in the fourth fiscal quarter will reinvigorate growth.
Sphere Entertainment is projected to experience a free cash flow (FCF) burn between $150 million and $200 million in fiscal year 2025. This projection includes the costs associated with launching a third show and could potentially reduce the company's willingness to allocate additional capital to Networks. Despite these challenges, Morgan Stanley's baseline forecast continues to include the construction and revenue contribution of a second Sphere venue, expected to commence in fiscal year 26.
The firm highlighted the uncertainty surrounding the Networks loan and the timing and impact of future Sphere projects. Due to these variables, a wide range of outcomes for Sphere Entertainment's equity is anticipated, leading to the decision to maintain an Equalweight stance on the stock.
In other recent news, Sphere Entertainment has been the focus of various analyst firms due to its recent financial performance and future prospects. Wolfe Research upgraded Sphere Entertainment's shares from Peerperform to Outperform, citing the company's potential for expansion and a new venue deal. This came as Sphere Entertainment reported a substantial revenue of approximately $273 million in its Fiscal 2024 Fourth Quarter, despite an adjusted operating income loss of $5.5 million.
Guggenheim maintained a positive outlook, adjusting its price target to $63 while keeping a Buy rating, influenced by potential licensing revenue from at least one international Sphere venue. Meanwhile, BofA Securities maintained a Neutral stance, adjusting the price target to $43 due to concerns over Sphere Entertainment's long-term profitability.
On a different note, Benchmark downgraded Sphere Entertainment's stock rating from Hold to Sell, citing concerns about the company's scalability and cost management. These analyst views come alongside Sphere Entertainment's disclosure of a new employment agreement with Andrea Greenberg, President & CEO of its subsidiary MSG Networks (NYSE:MSGN) Inc., promising her a target bonus opportunity of at least 50% of the annual target during a six-month transition period.
Sphere Entertainment also revised its stock award agreements, allowing for a case-by-case determination of vesting schedules, providing flexibility for employees. These recent developments underscore Sphere Entertainment's commitment to growth and innovation, despite facing challenges.
InvestingPro Insights
Adding to Morgan Stanley's analysis, recent InvestingPro data provides further context on Sphere Entertainment's (NYSE: SPHR) financial situation. The company's market capitalization stands at $1.66 billion, with a revenue of $1.03 billion for the last twelve months as of Q4 2024. Despite a robust revenue growth of 78.95% over the same period, Sphere Entertainment is facing profitability challenges.
InvestingPro Tips highlight that the company is quickly burning through cash and its short-term obligations exceed liquid assets. This aligns with Morgan Stanley's projection of a significant free cash flow burn for fiscal year 2025. Additionally, analysts do not anticipate the company will be profitable this year, which corroborates the concerns raised about the underperformance of the new Las Vegas show.
On a more positive note, Sphere Entertainment has seen a strong return over the last three months, with a price total return of 25.78%. This suggests that despite operational challenges, investor sentiment remains somewhat optimistic.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide valuable insights into Sphere Entertainment's financial health and market position.
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