Sphere, buoyed by U2's successful residency, spells opportunity, say analysts

By James Rogers

U2 kicked off its headline-grabbing residency at Sphere in Las Vegas on Sept. 29

The success of U2's residency at the Sphere in Las Vegas and Sphere Entertainment Co.'s announcement of a $225 million convertible note this week spell opportunity for investors, analysts say.

"We would take advantage of the Sphere's convertible offering pressure on SPHR shares," Seaport Research Partners analyst David Joyce wrote in a note released Thursday. Joyce also pointed to Sphere's (SPHR) financial update this week, citing U2's successful residency and Darren Aronofsky's 50-minute immersive film "Postcard from Earth," which is showing at the recently-opened venue.

U2 kicked off its headline-grabbing residency at Sphere on Sept. 29.

Related: Sphere shares soar after Macquarie raises price target to $34

"The guidance that the Sphere is generating positive AOI [Adjusted Operating Income] for the quarter means that the expenses are running at a lower rate than expected," he added. Set against this backdrop, Seaport upgraded Sphere to buy from neutral.

The 360-foot-tall concert and entertainment venue at the Venetian Resort is the world's largest spherical structure, according to the Venetian's website. Sphere also featured prominently in last month's Las Vegas Grand Prix.

Macquarie Equity Research raised its Sphere price target to $34 from $32 on Wednesday, also citing the $225 million convertible senior notes deal and the company's financial update. "Sphere released an 8-K yesterday alongside its convertible note announcement, citing expectations of positive Sphere AOI in [the fiscal second quarter] (vs FactSet cons loss of $14m) on its U2 residency, Postcard shows, and F1 takeover," wrote Paul Golding, Macquarie's senior U.S. lifestyle and payments analyst. "January-March will see four incremental U2 shows on top of the most recent 36 show count noted at the prior earnings call, bringing the total run to 40."

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The 17 largely sold-out U2 shows through Nov. 30, since the venue's grand opening, have driven $30.7 million in total revenue, or $1.8 million per show, Golding added.

Sphere shares ended Thursday's session up 2.5%, compared with the S&P 500 index's SPX gain of 0.8%. The company's stock has risen 54.3% in 2023, outpacing the S&P 500 index's gain of 19.4%.

-James Rogers

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12-07-23 1627ET

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