Sphere Entertainment Faces Scalability and Financial Risks Amid Expansion Plans, Reiterated Sell Rating

Analyst Mike Hickey from Benchmark Co. reiterated a Sell rating on Sphere Entertainment (SPHR – Research Report) and keeping the price target at $35.00.

Mike Hickey has given his Sell rating due to a combination of factors impacting Sphere Entertainment’s financial and strategic outlook. The company’s recent quarterly results revealed a decline in core revenue streams, such as Sphere Experience and advertising, despite having a fully operational venue in Las Vegas. This underperformance raises concerns about the scalability of their business model, especially as management plans to expand into smaller markets with mini-Spheres, which may not replicate the unique appeal of the Las Vegas location.
Hickey also points out that the high production costs and limited audience reach of Sphere’s content make it difficult to achieve the necessary operating leverage. The Las Vegas venue benefits from a constant influx of tourists, but this dynamic is unlikely to be replicated in smaller cities, where the local market could quickly become saturated. Additionally, the competitive landscape poses challenges, as the Sphere’s model lacks the content variety and frequency offered by traditional entertainment options. Without credible growth drivers, the financial risks of expansion are magnified, leading to the reiterated Sell rating and a price target of $35.