The analyst primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report.
Analyst Certifications and Independence of Research
Each of the LightShed analysts whose names appear on the front page of this content hereby certify that all the views expressed in this content accurately reflect our personal views about any and all of the subject securities or issuers and that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views of in this content.
LightShed Partners (the “Company”) is an independent equity research provider. The Company is not a member of the FINRA or the SIPC and is not a registered broker dealer or investment adviser. Lightshed Partners has no other regulated or unregulated business activities which conflict with its provision of independent research.
Current Ratings Definition
LightShed Partners’ recommendations are based on a stock’s total forecasted return over the next 12 months. Total forecasted return is equal to the expected percentage price return plus gross dividend yield. We divide our stocks under coverage into three primary ratings categories, with the following return guidelines:
Buy – we expect the stock price to appreciate by 15% or more over the next 12 months
Neutral – we expect the stock price to change by less than 15% within the next 12 months
Sell – our firm’s opinion is that this stock likely will be down by 15% or more over the next 12 months
Limitations of Research and Information
This content has been prepared for distribution to only qualified institutional or professional clients of LightShed Partners. The contents represent the views, opinions, and analyses of its authors. The information contained herein does not constitute financial, legal, tax or any other advice. All third-party data presented herein were obtained from publicly available sources which are believed to be reliable; however, the Company makes no warranty, express or implied, concerning the accuracy or completeness of such information. In no event shall the Company be responsible or liable for the correctness of, or update to, any such material or for any damage or lost opportunities resulting from use of this data.
Nothing contained in this content or any distribution by the Company should be construed as any offer to sell, or any solicitation of an offer to buy, any security or investment. Any research or other material received should not be construed as individualized investment advice. Investment decisions should be made as part of an overall portfolio strategy and you should consult with a professional financial advisor, legal and tax advisor prior to making any investment decision. LightShed Partners shall not be liable for any direct or indirect, incidental or consequential loss or damage (including loss of profits, revenue or goodwill) arising from any investment decisions based on information or research obtained from LightShed Partners.
Reproduction and Distribution Strictly Prohibited
No user of this content may reproduce, modify, copy, distribute, sell, resell, transmit, transfer, license, assign or publish the content itself or any information contained therein. Notwithstanding the foregoing, clients with access to working models are permitted to alter or modify the information contained therein, provided that it is solely for such client’s own use. This content is not intended to be available or distributed for any purpose that would be deemed unlawful or otherwise prohibited by any local, state, national or international laws or regulations or would otherwise subject the Company to registration or regulation of any kind within such jurisdiction.
Copyrights, Trademarks, Intellectual Property
LightShed Partners, and any logos or marks included in this content are proprietary materials. The use of such terms and logos and marks without the express written consent of LightShed Partners is strictly prohibited. The copyright in the pages or in the screens of the content, and in the information and material therein, is proprietary material owned by LightShed Partners unless otherwise indicated. The unauthorized use of any material in this content may violate numerous statutes, regulations and laws, including, but not limited to, copyright, trademark, trade secret or patent laws.
Company Valuation and Risk Disclosures
Activision Blizzard, Inc. (ATVI, Buy, $92 PT)
Valuation: Our $92 PT is 26x our average 2020-2022 EPS estimate of $3.52.
Risks: Our numbers assume meaningful bookings from upcoming Blizzard titles Overwatch 2 and Diablo 4. Any delay in production and release would have a direct impact on our numbers. Pandemic-related tailwinds abate faster than expected and are one-time in nature. Warzone’s success as an FTP offering ultimately cannibalizes sales of this fall’s newest COD premium release, Cold War. Activision’s upcoming releases, which are based on IP that originated 20+ years ago, could fail to resonate with present day players. CoD Mobile fails to maintain its current monetization trajectory over an extended period of time. Poor execution of in-game monetization could alienate consumers. Inability to develop advertising business and non-Candy Crush IP for King.
Live Nation (LYV, Buy, $100 PT)
Valuation: Our 12-month price target of $100 is based on a 19.5x 2021 EV/EBITDA multiple.
Risks: A global recession could limit discretionary income and slow fan and ticket growth. Regulatory risk tied to Live Nation’s vertically integrated business model. An inability to meaningfully scale sponsorship opportunities outside of festivals. Slower-than-expected international growth as Live Nation moves into new markets
Madison Square Garden Entertainment (MSGE, Buy, $120 PT)
Valuation: Our $120 price target is based on a SOTP methodology
Risks: MSGE is levered to the entertainment industry, which is uniquely impacted by the ongoing COVID-19 global pandemic. We have accounted for a prolonged downturn due to COVID-19. However, any extension of COVID-19’s impact beyond our modeled timeline could have a negative impact on MSGE’s entertainment business and the company’s valuation. We also model material Sphere AOI in 2023. Any delay in construction timeline could also impact our valuation.
Netflix, Inc. (NFLX, Buy, $630 PT)
Valuation: Our 12-month price target of $630 is based on a 25x 2023 EBITDA discounted back at 15%.
Risks: Proliferation of new SVOD and AVOD streaming services (Disney+, Apple TV+, HBO Max, Quibi, Peacock, etc) increases competition for consumer time and money, which could have a negative impact on Netflix’s subscriber growth, particularly in the US . More competition for content could increase Netflix’s content costs and slow its contribution margin growth. Competitors have started to pull library content from Netflix, which could increase the service’s churn. Netflix has historically accessed debt markets for financing. Any adverse changes in lending standards could impact Netflix’s ability to continue increasing their spend. International growth will require specific, and potentially expensive, content tied to each individual market, with no guarantees that the content will resonate outside of its intended market.
Snap, Inc. (SNAP, Buy, $20 PT)
Valuation: Our 12-month price target of $20 is based on a 25x 2022 EV/EBITDA multiple discounted back one year at 20%
Risks: Facebook increasing its focus on private messaging through Threads could pressure Snapchat’s user base. Outcome of ongoing SEC/DOJ Investigation is unknown. Snapchat’s entrance into mobile gaming could be met with increased ongoing competition through both subscription offerings (Apple Arcade, Google Play Pass) and free-to-play (evidenced by the recently released Call of Duty: Mobile). Increased competition in the mobile advertising space.
The Madison Square Garden Company (MSG, Buy, $60 PT)
Valuation: We value MSG at $360, based on a sum-of-the-parts basis. We are valuing Entertainment Co at $161 excluding its retained interest in sports. We are valuing Sports Co at $198. If we allocate 1/3 of Sports to Entertainment, Entertainment shareholders would own $227 per share of value in the Entertainment company and $133 in Sports company. Adding the two pieces together, we get $360.
Risks: Greater-than-anticipated capex and lower-than-anticipated EBITDA tied to the MSG Spheres. Economic downturn in New York City. Declining or stagnant professional sports franchise valuations in future ownership sales.
The Walt Disney Company (DIS, Sell, $85 PT)
Valuation: Our 12-month price target of $85 is based on 25x 2022 earnings, discounted back at 15% and adding in $15 of incremental value for Disney+.
Risks: Disney pivots their entire business toward streaming, abandoning theaters and home entertainment and begins releasing movies direct-to-Disney+ and moves the Disney+ price point to $15-$20 enabling them to own their own distribution forever forward. Disney theme parks reopen this fall and attendance comes back far faster than expected with no second wave of COVID-19. Movie theaters reopen this summer and attendance comes back far faster than expected with Disney moving faster than expected to release new films. Most major sports return starting this summer including the NBA finishing its season and college sports starting in September.
Twitter Inc. (TWTR, Buy, $45 PT)
Valuation: Our 12-month price target of $45 is based on a 25x 2021 EV/EBITDA multiple.
Risks: DAU growth slows and/or reverses due to reduced interest in the Twitter product offering and/or increased competition from larger industry peers such as Facebook and Google. Given that the overwhelming majority of Twitter’s revenues are derived from advertising, a meaningful downturn in the global economic outlook could pressure Twitter’s earnings growth. Increased regulation adds to cost pressure and weakens the ability to monetize Twitter’s user base. Weakness in the Japanese market given that it represented 16% of total company revenue in 2019.