As we begin 2024, it is hard to know if the past year was the beginning of a revival for Hollywood stocks or the beginning of the end.
There was good news and bad news in the movie business in 2023. The good news: there was $9 billion in ticket sales, 21% higher than in 2022. The bad news is that ticket sales were $2 billion shy of pre-pandemic norms, Fortune reported on Dec. 31.
The tricky part for movie stocks in 2024 is that both the writers’ and actors’ strikes, which ended in late 2023, have caused production delays that will push 2024 top releases into 2025, reducing the drawing potential at the box office.
Is now the time to bet on Hollywood? Maybe. Maybe not. Here are three safe bets to play movie stocks in 2024.
Amazon (AMZN)
The safest bet of all the Hollywood stocks would be Amazon (NASDAQ:AMZN), which owns MGM Studios, which it acquired for $8.6 billion (assumed $2.5 billion in debt) in March 2022. If you watch new films from MGM, you’ll see that under the roaring lion is the name Amazon MGM Studios.
Amazon acquired MGM from a group of private equity firms. Barron’s reported at the time of the announcement in May 2021 that the studio had $1.5 billion in annual revenue. Amazon had $9.9 billion in net income in Q3 2023 alone.
The MGM business is a rounding error for Amazon. The only reason it bought it was for the movie studio’s film and television library, which boosted Amazon Studios.
If the movie business doesn’t continue to recover in 2024, Amazon’s overall business won’t even notice.
Walt Disney (DIS)
Walt Disney (NYSE:DIS) CEO Bob Iger has plenty of issues he’s currently dealing with, including a fight between several activist investors.
ValueAct Capital and Blackwells Capital are defending the company from another activist, Nelson Peltz, pushing the entertainment business “to cut costs, lay out a CEO succession plan, and revamp the group’s streaming operations,” Reuters reported on Jan. 3.
Despite the headwinds Disney faces — diminishing returns from its linear TV channels such as ABC and FX, ongoing losses from its video streaming platforms, and debate about what to do with ESPN — it has many wonderful assets, including Walt Disney Studios, Pixar Animation Studios, Marvel Studios, Lucasfilm, and 20th Century Studios.
All of these businesses are included in its Entertainment segment. In fiscal 2023, the segment generated $40.64 billion in revenue and $1.44 billion in operating income. In 2023, the studios planned to produce 40 titles for release on Disney+ and Hulu and in movie theaters.
As Iger said in November, it has four major goals in 2024: achieving a sustainable profit for streaming, continuing to build ESPN, improving the cost and profit structure of its studios, and accelerating the already impressive growth in its Experiences segment.
Suppose you want to bet on the movies. In that case, the Experiences business provides plenty of cover — it generates 37% of Disney’s revenue and 70% of its operating income — until Iger figures out how to make money from movies for the long haul.
EPR Properties (EPR)
EPR Properties (NYSE:EPR) is a Kansas City-based real estate investment trust (REIT) that owns entertainment properties, including 169 movie theaters in 36 states operated by 19 movie exhibitors. They generate approximately 39% of their annualized adjusted earnings before interest, taxes, depreciation and amortization for real estate (EBITDARE).
Movie studios generally get 60% of box office proceeds, while the theaters get 40%. It’s from that 40% that exhibitors pay their rent.
So, the better the movies, the better the chance operators will have the funds to pay rent. This past year was good with some hits — Barbie and Oppenheimer come to mind — but fewer than in 2022.
According to the Q3 2023 conference call, the company’s focus on the experiential economy sets it apart from other REITs. EPR had $6.7 billion in investments spread across 359 properties in the U.S. and Canada as of Sept. 30, 2023, with an occupancy rate of 99%.
With a monthly dividend of $0.2750, its annual rate of $3.30 yields a high of 6.8%. Get paid to wait for its shares to fall below $40, which is when you should buy more.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.