Shares of Sphere Entertainment rose this week. Here’s why.

Actions of Sphere Entertainment Co. (SPHR 6.05%) rose 25% this week, according to data from S&P Global Market Intelligence. Upstart entertainment venue and owner of the Las Vegas Sphere and regional sports networks again showed strong growth in its latest earnings report and a path to profitability. As of 1:46 pm ET on Friday, Sphere Entertainment was up 21.7% from last Friday’s close and 46% year-to-date.

Here’s why shares of Sphere Entertainment popped this week.

Strong growth, exceeding expectations

In the fourth quarter of its 2024 fiscal year, Sphere Entertainment’s revenue rose to $273.4 million, up from $129 million a year ago. Revenue at regional sports network MSG actually fell slightly, so more than 100% of the increase came from the Sphere entertainment venue. Revenue went from virtually zero a year ago to $151 million in the three months ended June, indicating how popular the location has been since opening for commercial operations.

With unique music, lifestyle and sporting events hosted in this circular video arena, there is a lot of demand for Sphere’s unique location on the Las Vegas strip. It can charge a penny for each event. For example, his Postcard From Earth event averaged over $1 million in average daily ticket sales. Not bad.

Earnings are negative today, with the consolidated business posting an operating loss of $71.4 million in the quarter. However, much of this is due to depreciation and amortization from all the initial costs of building the Las Vegas Sphere. Free cash flow has been trending in the right direction for several quarters, going from nearly $1 billion in annual consumption to a loss of $284 million over the past 12 months. Investors should look for more improvements over the next few years.

Sphere Entertainment has a market cap of just $1.7 billion and generates over $1 billion in revenue that is growing rapidly. If it can get to positive cash flow, there could be a lot of value for shareholders of this stock.

Management plans to open more spheres in international markets. With only one sphere open today, the segment generates nearly $500 million in annual sales (the rest from regional sports networks). If it can open just a few of these unique locations around the world, the segment could generate billions in revenue.

Clearly, there is a lot of upside potential for this stock. But, the company is burning a lot of cash, which makes it risky. Investors who want a piece of the Sphere should make it a small position in their portfolios.