Investors Flee Hollywood Stocks As Ad Slump Roils ShowBiz -- Will It End?
The 1,000-point nosedive in the Dow Jones industrial average is poised to continue on Monday on fears the economy is skidding into an unavoidable recession, with entertainment stocks among the industries hit hard as analysts expect consumers to tighten their belts. Even the venerable Disney stock has been hit hard, which has one analyst seeing a harbinger of “doom and gloom.”
Investors worry a significant drop in consumer spending would hurt Hollywood as TV advertisers slash budgets, families cancel summer theme park vacations and subscribers cancel streaming services to save cash. Exacerbating any potential recession-related drop is that the industry has already been under significant pressure, with one key barometer — the S&P 500 Media & Entertainment index — down 33% from its all-time high last August.
But one top Wall Street analyst worries that not even Walt Disney Co., the world’s largest and most financially fortified entertainment conglomerate, has been able to convince investors to buy the stock. The company reports fiscal second-quarter results on Wednesday.
“The fact that Disney is trading at $110 is stunning, it’s hard to believe,” said Jessica Reif Ehrlich, senior U.S. media and entertainment analyst at Bank of America Securities. “As the market collapses, multiples collapse. We are in that period of it being doom and gloom.”
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Multiples, the metrics that Wall Street uses to assign companies a value, have been eroding for the past year and curbed investor appetite for entertainment companies. Disney shares have suffered a 41% decline this year, landing at $108.68 at time of publishing. And that kind of steep drop is almost unheard of among the blue-chip members of the Dow Jones index that tracks stock performance of the nation’s 30 largest companies.