- Discovery and AMC Networks have skyrocketed in value since the start of 2021.
- Both companies are among the most shorted U.S. equities.
- Media companies that still generate consistent cash flow from cable networks have become en vogue as investors seek value.
Since launching Discovery+ on Jan. 4, Discovery shares are up a whopping 116%, closing Monday up another 4.7% at $67.25 — an all-time high. The market capitalization of the media company, which owns cable networks such as HGTV, Discovery Channel, Food Network and TLC, is now more than $28 billion. Its enterprise value is more than $41 billion.
Discovery is one of the 10 most-shorted companies among U.S. listed securities, according to data by research firm FactSet. Discovery's short interest — the amount of outstanding shares that have been sold short — is more than 27%, just ahead of fellow media company AMC Networks (not to be confused with AMC Entertainment Holdings, which owns movie theaters and whose stock skyrocketed along with GameStop last month).
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Discovery still has strong free cash flow from its cable networks, which brought in $6.9 billion in 2020 revenue 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 upgraded the stock and boosted its price target to $63 per share in early January.
"This frenzy has been faster than we could have ever imagined," said Nathanson. "We assumed a rotation into value, but still."
AMC Networks -- which owns cable networks AMC, WeTV, Sundance and BBC America -- has also more than doubled since the start of January, even 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 owned content compared to media behemoths like Netflix and Disney.
That's a sign both companies are primarily benefitting from shorts frantically covering bets to avoid being squeezed — like GameStop.