- 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).
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.