Bernstein starts coverage of entertainment stocks: Spotify and TKO at Outperform

Investing.com -- Bernstein launched coverage of the U.S. entertainment sector with Outperform ratings on five companies, including Spotify (NYSE: SPOT) and TKO Group, citing the growing power of superfans and demand for premium experiences as key drivers of future growth.

“We expect the experience economy to continue to run hot as live music&sports venues scramble to meet seemingly insatiable demand for ultra-luxury VIP packages,” Bernstein analysts wrote.

TKO Group, owner of the WWE and UFC franchises, stands to benefit. “We like TKO’s complementary portfolio and unique IP,” Bernstein said, adding the company is well-positioned in the superfan-driven segment of live entertainment.

Spotify, meanwhile, is expected to gain pricing power and launch new monetisation tools aimed at its most engaged users.

“We expect SPOT to surprise on pricing and deliver a strong superfan product launch next year,” analysts wrote, referencing the company’s upcoming Music Pro tier. Bernstein sees 24% upside for Spotify shares with a price target of $825.

The analysts argue that entertainment industry growth will increasingly come from superfans — “the most engaged and price insensitive cohort of content consumers” — rather than casual users.

While this could mean slower user growth, profitability is expected to accelerate at companies that successfully capitalise on superfans.

Bernstein also rated Live Nation, DraftKings (NASDAQ: DKNG), and Warner Music Group (NASDAQ: WMG) Outperform, while assigning Market-Perform ratings to Liberty Formula One and Flutter Entertainment.

“Our recommendation to own the majority of these large-cap names is based on the core belief that superfans… will be the key driver of growth&profitability in the next phase of the industry,” the analysts said.

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