Media

Jefferies Sees Massive Upside in 3 Entertainment Stocks

At a trading price of around $17 Friday morning, Skillz’s stock was fully valued, based on Jefferies’ price target. The consensus price target is $28.71, a potential jump of about 69%. Cathie Wood’s ARK Next Generation Internet ETF holds nearly 6.9 million shares of Skillz stock, for which the average cost has been about $23.86. The fund bought more than 1.2 million of its Skillz shares on Thursday at an average price of $16.57.

Since its IPO, Skillz has traded in a range of $9.81 to $46.30 per share.

Spotify

Jefferies initiated coverage on Spotify Technology S.A. (NYSE: SPOT) with a Buy rating and a price target of $360 per share. While threats to Spotify appear around every corner (think Apple and Amazon), analysts at Jefferies believe that Spotify is “more platform than streaming service” and, as such, has more loyal customers, is less likely to be pushed aside by new technologies, and has a “longer tail of growth/margin expansion.”

Succinctly put, this is the Jefferies outlook for Spotify:

We believe we are in the early innings of a creator economy where content creation/distribution/marketing has been democratized, [and one ] in which Spotify will become the primary audio platform for creators.

That means beating Apple and Amazon and handfuls of smaller competitors, an outcome Jefferies thinks is likely given that Spotify adds some 50,000 new songs daily and that the company is “quickly building the tools for the broader audio creator market,” meaning podcasts. The formula, according to Jefferies, is more content creators generate more subscribers, which lead to more content creators and, well, rinse and repeat.

At a current trading price of around $283, upside potential to Jefferies $360 target is 27%. The consensus price target is $321.25.

The stock’s 52-week range is $136.62 to $387.44. Spotify does not pay a dividend.

Warner Music

Jefferies started coverage of Warner Music Group Corp. (NASDAQ: WMG) with a Hold rating and a price target of $39. The big question is whether musicians need a record label when there are any number of tools that independent artists can use to record and distribute their music without having to go to a major label like Warner.

The analysts see multiple new opportunities for labels to better monetize music, ranging from “deeper integration with social media, new platforms such as live streaming and exercise, and emerging engagement worlds like ‘metaverses.'” Traditional tactics like buying back-catalogs and new ideas like non-fungible tokens also could create new revenue streams.

While Jefferies is upbeat on the industry, the analysts also say that their valuation analysis indicates that Warner Music “looks like a fair-valued stock.” The analysts expect overall margin to be a bit lower once lower-margin live concerts return, but say it could be wrong about the “margin profile. … The return to live music could be even bigger than we anticipate though we are very bullish.”

At a current trading price of around $37.10, the upside potential to the $39 Jefferies target is about 5.1%. The consensus price target on the stock is $40.07.

Warner’s post-IPO range is $25.61 to $39.61, and the company pays an annual dividend of $0.48 (yield of 1.33%).