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. 

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Ratings Definitions 

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 

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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.