Published on: December 5, 2024, 03:34h.
Last updated on: December 5, 2024, 03:34h.
Shares of Sphere Entertainment (NYSE: SPHR) slipped Thursday after a research firm recommended shorting the recently slumping stock.
In a note to clients, Hedgeye analyst Andrew Freedman said the operator of the Las Vegas Strip entertainment venue faces an array of headwinds, adding the shares could see as much as 30% downside in the months ahead.
SPHR faces an array of challenges that we expect will weigh on growth through 2025 and potentially beyond,” Andrew Freedman wrote. “Without significant growth in the Sphere Experience segment to offset persistently high operating costs, profitability remains elusive.”
His comments align with others that suggest Sphere Entertainment needs to land top-tier acts and programming to improve its economic viability. Some analysts emphasize the importance of attracting marquee acts and prime events to overcome high operating costs.
Sphere Stock Decline and Criticisms
Hedgeye’s negative outlook on Sphere stock comes during a 10% decline over the past month, with short interest at 29.5%, indicating it is a prime target for bearish traders.
The recent slump in stock price and a third-quarter operating loss of $125.1 million support the bearish sentiment. A consistent decrease in gross gaming revenue (GGR) in Nevada over four months also contributes to the negative outlook on Sphere Entertainment. Some doubt the strategy of reducing show volumes to maintain high utilization rates and revenue growth.
“We have serious doubts about the sustainability of reducing show volumes as a long-term strategy to maintain higher utilization rates and grow revenue,” observed the analyst.
In his report, Freedman also highlighted concerns about Sphere Entertainment’s ownership of debt-laden Madison Square Garden Network. However, Sphere recently took steps to address these concerns by announcing a deal with creditors in a filing with the Securities and Exchange Commission (SEC) on October 11.
Challenges of Shorting Sphere Stock
Despite high short interest, financial struggles, and operating costs, shorting Sphere stock may not be straightforward. Bearish positions could face risks from the company announcing new big-name residencies and entertainment options for non-residency days.
Chairman and CEO James Dolan mentioned plans for new entertainment options at the venue, including a Sphere-friendly version of the classic “The Wizard of Oz” for non-residency days.