Morgan Stanley lists "preferred targets" in the U.S. advertising and media sector for 2025

Morgan Stanley stated its most favored advertising sector stocks and listed its preferred media and entertainment stocks for 2025.

Advertising and Marketing Services

Morgan Stanley indicated that the U.S. advertising market is expected to grow by about 6.1% in 2025, as the market will face a challenging four-year base effect due to the simultaneous occurrence of the U.S. presidential election and the Summer Olympics in 2024. However, the research firm expects U.S. advertising spending to grow strongly, driven by content spending at the bottom of the conversion funnel, and selected Meta (META.US) and Reddit (RDDT.US), which are rated "Overweight" in their internet industry subcategories.

Morgan Stanley analysts explained: "Meta is well-positioned as it has a large number of GPU-supported products, including AI-driven Feed and improved video recommendations, which can learn more effectively from larger data sets and new ranking model architectures with incremental diffusion model capabilities... On smaller advertising platforms, we believe Reddit continues to be well-positioned to drive U.S. advertising revenue growth of about 35%, which is 2-6 times faster than its competitors."

Morgan Stanley also discussed the merger between Omnicom (OMC.US) and IPG (IPG.US), which, if approved, would create the largest advertising company in the world by 2025. They stated that such a large potential deal "may face some regulatory scrutiny, and execution risks may arise, as both companies are service firms with human capital, which could lead to integration challenges."

Additionally, the research firm mentioned Roku (ROKU.US) and reiterated its "Underweight" rating. They believe the CTV advertising market is "becoming increasingly competitive," with mid-term platform gross profit expectations facing risks and limited valuation support for next year.

Media and Entertainment

Morgan Stanley analysts removed Spotify (SPOT.US) from their preferred list and selected Disney (DIS.US) as their top pick for the new year. However, both stocks maintained an "Overweight" rating, with target prices raised.

In streaming, they expect Disney and Warner Bros. Discovery (WBD.US) to achieve substantial streaming profits, while Paramount (PARA.US) is expected to achieve domestic streaming profits by 2025. They noted that Fox's (FOXA.US) Tubi has only a slightly negative EBITDA, with only NBC's Peacock still in a loss position.

Morgan Stanley analysts stated: "Despite the improving outlook for the streaming industry and enhanced potential for overall industry consolidation, we see no reason to become more optimistic." Warner Bros. Discovery and Fox were given "Hold" ratings, while Paramount Global and AMC Theatres (AMC.US) received "Underweight" ratings.

For theme parks in the U.S., Disney and Six Flags (FUN.US) are their top picks. Morgan Stanley stated: "Disney's scale of experience is unparalleled, providing a significant advantage in the investment growth process." Secondly, they believe that driven by the improvement in the monetization of traditional parks, Six Flags is positioned to achieve accelerated revenue growth in 2025 and beyond. Since the outbreak of the pandemic, the relative growth of traditional parks has still lagged behind that of leisure parks.

Regarding sports assets, considering the long-term growth of media rights, sponsorships, and live events, the research firm remains optimistic. The company expects to continue to see healthy growth, particularly in Liberty Formula One (FWONK.US) and TKO Group (TKO.US), Madison Square Garden Sports (MSGS.US), and the Atlanta Braves (BATRK.US), benefiting from the rising team values.

In terms of box office, Morgan Stanley stated that it has increased confidence in the comprehensive recovery of the U.S. domestic economy and favors Cinemark (CNK.US). They expect that in 2025 and 2026, the box office supply from traditional film companies and tech film companies will increase, further driving box office recovery. They anticipate that by 2026, with the increase in blockbuster supply and the maintenance of supply from medium and small films, film supply will return to pre-pandemic levels.

For news stocks, the research firm believes that The New York Times (NYT.US) can benefit from scale expansion, but its core news network growth has slowed, raising questions about long-term user opportunities. The stock is rated as "hold."