Sphere Entertainment (SPHR)

Content production and distribution company Sphere Entertainment (NYSE:SPHR) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 15.2% year on year to $262.5 million. Its GAAP loss of $2.80 per share was significantly below analysts’ consensus estimates.

Company Overview

Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE:SPHR) hosts live entertainment events and distributes content across various media platforms.

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

Competitors in the live entertainment and content production industry include Live Nation (NYSE:LYV), Endeavor (NYSE: EDR), and Madison Square Garden (NYSE:MSGE).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Sphere Entertainment’s sales grew at a sluggish 8.5% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Sphere Entertainment’s annualized revenue growth of 232% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note that COVID hurt Sphere Entertainment’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Sphere and MSG Networks, which are 66.3% and 33.7% of revenue. Over the last two years, Sphere Entertainment’s Sphere revenue (live events and advertising) averaged 15.2% year-on-year growth. On the other hand, its MSG Networks revenue (content distribution) averaged 14.4% declines.

This quarter, Sphere Entertainment’s revenue grew by 15.2% year on year to $262.5 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 10% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Sphere Entertainment’s operating margin has been trending down over the last 12 months and averaged negative 28.5% over the last two years. Unprofitable consumer discretionary companies with falling margins deserve extra scrutiny because they’re spending loads of money to stay relevant, an unsustainable practice.

Sphere Entertainment’s operating margin was negative 49.4% this quarter. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sphere Entertainment’s earnings losses deepened over the last five years as its EPS dropped 50.8% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, Sphere Entertainment’s low margin of safety could leave its stock price susceptible to large downswings.

In Q3, Sphere Entertainment reported EPS of negative $2.80, up from negative $2.95 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the last two years, Sphere Entertainment’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 3.4%, meaning it lit $3.43 of cash on fire for every $100 in revenue.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Sphere Entertainment’s five-year average ROIC was negative 10.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Sphere Entertainment’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Sphere Entertainment posted negative $242.7 million of EBITDA over the last 12 months, and its $1.00 billion of debt exceeds the $398.3 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

We implore our readers to tread carefully because credit agencies could downgrade Sphere Entertainment if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope Sphere Entertainment can improve its profitability and remain cautious until then.

We struggled to find many positives in these results. Its revenue missed and EPS both fell short of Wall Street’s estimates by large amounts. Overall, this quarter could have been better. The stock traded down 7% to $61.60 immediately after reporting.

Updated: December 4, 2025 at 10:39 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We cheer for all companies serving everyday consumers, but in the case of Sphere Entertainment, we’ll be cheering from the sidelines. For starters, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Sphere Entertainment’s EV-to-EBITDA ratio based on the next 12 months is 10.3x. This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $76.40 on the company (compared to the current share price of $82.76).