Sphere Entertainment Co. (SPHR), the company behind the ambitious Las Vegas Sphere, is facing headwinds due to high production costs and questions about its scalability. Despite the company’s efforts to attract audiences with unique events, like the recent screening of “Wizard of Oz,” analyst Mike Hickey from Benchmark believes the profitability outlook for Sphere is “underwhelming.”
Hickey downgraded Sphere’s rating to Sell, setting a price target of $40. He argues that creating content for the Las Vegas Sphere is expensive, and not all productions resonate with audiences. With just one screen to recoup these massive investments, Hickey sees significant financial risk.
“Replicating the Las Vegas model in other markets appears challenging,” Hickey stated in his downgrade note. He highlights the huge investments needed, potential community opposition to “sound-emitting structures,” and the scarcity of locations with the consistent tourist traffic necessary to sustain long-running content or concert residencies.
Additionally, Hickey expressed concerns about a weakening consumer environment potentially impacting non-gaming entertainment in Las Vegas, including Sphere’s advertising business and ticket pricing for films, live shows, and concessions.
SPHR’s share price reflected these concerns, declining by 3.2% to $45 at the time of publication on Tuesday. The company is navigating a challenging landscape, facing the difficult task of balancing ambitious entertainment projects with profitability in a potentially volatile market.