The culmination of last week's 96th Academy Awards marked the finale of the annual award season, which also includes prestigious events like the BAFTAs and the Golden Globes.
The high-profile celebration of cinema, popularly known as the Oscars, cast a sharp spotlight on film studios that snagged the highest number of nods and noms for the most prestigious award in the global film industry.
Based on their impressive showing at the Oscars, the following entertainment powerhouses emerge as compelling investment opportunities. These businesses are well positioned to capitalize on a renewed surge in demand for their content, driven by the highest accolades as well as robust box office earnings.
Media juggernaut Comcast is made up of three parts: core cable business; NBCUniversal which owns multiple media and entertainment assets including Universal Studios; and TV business which includes Sky, U.K.'s largest pay-television operator.
Universal Pictures, the leading motion picture company of the firm, dominated the 96th Academy Awards with its biopic Oppenheimer, securing seven trophies, including Best Picture, out of 13 nominations, surpassing all other studios.
Cable business remains the crown jewel of Comcast and enjoys significant competitive advantages, “but has seen growth slow as fixed-wireless offerings have provided a viable option for a subset of customers,” says a Morningstar equity report.
Although NBCUniversal, which owns Universal Pictures, may not be as strongly positioned, it possesses distinctive assets such as core content franchises and theme parks. “We don’t love the firm’s strategy around [streaming service] Peacock, but we expect NBCU’s assets will play a significant role in the media landscape of the future,” says Morningstar analyst, Michael Hodel, who pegs the stock’s fair value at US$60.
Comcast benefits from deeply entrenched competitive advantages in the cable industry. However, NBCUniversal does not enjoy the same level of competitive advantages.
Yet, the segment warrants a narrow moat, says Hodel, adding that “Comcast has modeled NBCU on Disney, investing heavily to create and bolster core content franchises, like Jurassic World and Despicable Me, while building multiple outlets to monetize and reinforce the popularity of this content.”
Online retail behemoth Amazon netted a whopping US$386 billion in sales and approximately US$578 billion in estimated physical/digital online gross merchandise volume in 2021. Retail accounts for approximately 80% of its revenue, while Amazon Web Services (which includes cloud computing, storage, and database offerings) contributes 10%-15%, with 5% coming from advertising services.
Amazon MGM Studiosscored big at the 96th Academy Awards nominations with American Fiction, which bagged a total of 5 noms, and Best Adapted Screenplay award, beating out heavyweights such as Oppenheimer and Barbie. Amazon significantly boosted its content library after it acquired MGM Studios in 2021.
Amazon’s dominance in e-commerce and cloud services is unparalleled, built on numerous competitive advantages underpinned by its size and scale. “The secular drift toward e-commerce continues unabated with the firm continuing to grind out market share gains despite its size,” says a Morningstar equity report
Amazon is experiencing rapid revenue growth, expanding margins, unparalleled scale, and maintains a strong balance sheet, the report adds.
The tech giant’s online shopping business includes streaming service Amazon Prime Video, a household name. Over the years, Amazon Prime’s original content has garnered critical acclaim and commercial success.
“Prime ties Amazon’s e-commerce efforts together and provides a steady stream of high-margin recurring revenue from customers who purchase more frequently from Amazon’s properties,” says Morningstar analyst Dan Romanoff, who puts the stocks fair value at US$185, and projects 11% annual revenue growth through 2028.
Walt Disney operates in three business segments: entertainment, sports, and experiences. The company makes live-action and animated films under studios such as Pixar, Marvel, and Lucasfilm, and also operates media networks including ESPN, ESPN+ and several TV production studios. It also owns theme parks and vacation destinations.
The House of Mouse hogged this year’s Oscar nominations with Poor Things, which bagged four trophies and 11 nominations, second only to Oppenheimer.
To offset a steady decline in its linear networks businesses, Disney has pivoted towards on-demand, direct-to-consumer (DTC), streaming services, offered through Disney+ and ESPN+.
“Disney’s cash flow outlook is now much improved after it was crunched by the pandemic and investments in its streaming service,” says a Morningstar equity report, pointing out that the firm generated a staggering US$5 billion in free cash flow in fiscal 2023, the most since 2018.
Disney’s sustainable competitive advantage is built on “intangible assets [which] include the intellectual property behind franchises and characters that have proved enduring across generations, ESPN’s position in the sporting world, and the multiple television and movie production studios Disney has,” says Morningstar analyst Matthew Dolgin, who appraises the stock’s fair value to be US$115.
By 2028, Disney+ and Hulu are projected to have amassed 65 million subscribers, but will remain below leader Netflix, which currently has nearly 80 million subscribers in the U.S. and Canada combined.
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