Discovery, very short AMC networks, big winners of 2021

David zaslav

Anjali Sundaram | CNBC

It’s not GameStop, but Discovery can thank the Reddit effect for a huge spike in its share price this year.

Since Discovery + launched on January 4, Discovery shares have risen a whopping 116%, closing Monday with another 4.7% at $ 67.25, a record high. The market capitalization of the media company, which owns cable networks like HGTV, Discovery Channel, Food Network and TLC, is now more than $ 28 billion. Its business value is more than $ 41 billion.

Discovery is one of the 10 companies with the most short positions among US-listed stocks, according to data from research firm FactSet. Discovery’s short interest, the number of outstanding shares that have been sold short, is more than 27%, just ahead of media company AMC Networks (not to be confused with AMC Entertainment Holdings, which owns cinemas and whose shares soared along with GameStop last month).

Discovery still has strong free cash flow from its cable networks, which generated $ 6.9 billion in revenue in 2020 and $ 4 billion in adjusted operating income before depreciation and amortization. It’s not a failing business, and part of its rise this year is a cyclical move from growth to value stocks, according to MoffettNathanson media analyst Michael Nathanson, who improved the stock and raised his price target to $ 63 a share. at the beginning of January.

“This frenzy has been faster than we could have imagined,” Nathanson said. “We assume a turnover in value, but still.”

AMC Networks, which owns the AMC, WeTV, Sundance and BBC America cable networks, has also more than doubled since early January, though it doesn’t have a streaming service with the same potential growth story as Discovery +, which has already surpassed more than 11 million subscribers. AMC Networks’ long-term growth prospects in a streaming world are suspect at best, with minimal content compared to media giants like Netflix and Disney.

That’s a sign that both companies are mostly profiting from shorts frantically hedging bets to avoid being squeezed, like GameStop.

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