Sphere Entertainment Stock Gets Analyst Downgrade for ‘Potentially Underwhelming Profitability Outlook’

The year-old Sphere venue quickly became a must-see attraction in Las Vegas, but some analysts don’t believe the eye-grabbing, multi-purpose venue has a viable business model. Benchmark downgraded Sphere Entertainment Co. to a “sell” rating on Tuesday (Sept. 3) with a $40 price target, sending the stock down 4.4% to $44.55. 

Benchmark downgraded the stock over concerns about the company’s “scalability, high production costs, and a potentially underwhelming profitability outlook,” wrote Benchmark analyst Mike Hickey in an investor note. “A weakening consumer environment may negatively impact their Las Vegas non-gaming entertainment business, while MSG Networks faces significant debt maturity challenges.” The MSG Networks division of Sphere Entertainment Co. operates regional sports networks and the MSG+ streaming platform. 

The Sphere Entertainment downgrade arrived on a rough day for stocks in general. A handful of music companies had similar losses on Tuesday: Reservoir Media and SiriusXM each fell 5.2%, Spotify dropped 4.2%, Madison Square Garden Entertainment slipped 4.0% and iHeartRadio lost 3.9%. The tech-heavy Nasdaq composite lost 3.3% and the S&P 500 was down 2.1%.  

Sphere Entertainment posted a $201 million net loss on revenue of $1.03 billion in the fiscal year ended June 30. Hosting residencies by U2, Phish and Dead & Company, the venue itself generated revenue of $489.4 million in its first three full quarters of operation, with the film Postcards from Earth earning more than $300 million in “high margin” revenue since opening in October 2023. Sphere has also expanded to corporate and sporting events by hosting Hewlett Packard Enterprise and the NHL Draft.

The stunning $2.3 billion venue has “the potential to change the entertainment landscape for artists, guests and partners,” CEO James Dolan said during the company’s Aug. 14 earnings call. “Fully realizing that vision will take time, but we are learning every day how to optimize Sphere’s operating model.” Dolan emphasized how the company is learning to increase the venue’s utilization to hold different types of events and multiple events on a single day.

Following Tuesday’s decline, Sphere Entertainment’s share price is up 31.1% year to date.