In case you haven’t heard, everyone is cutting the cord.
This trend started in 2012, shortly after Netflix, Inc. (NASDAQ:NFLX) split its streaming business from its DVD business and pioneered a new era of direct streaming television. In 2012, traditional TV subscriptions in the U.S. peaked at 97.6 million. Ever since then, cord cutting has taken over, and its accelerated with impressive pace.
Now, cord cutting isn’t niche anymore. It’s mainstream. And many view 2017 as the year cord cutting went mainstream.
Part of that is more widespread adoption of Netflix. Netflix did grow its domestic subscriber base from 49.5 million to 54.8 million in 2017 as the streaming platform’s value prop grew (thanks, Stranger Things, 13 Reasons Why and The Crown).
But another part of streaming going mainstream is the emergence of multiple streaming services. While streaming video is still a Netflix-dominated world, it’s not a Netflix-exclusive world. There are now multiple streaming services. And as cord cutting continues to accelerate, more people will be using these streaming services in addition to Netflix.
All in all, streaming video is a secular growth narrative. But you don’t have to buy NFLX stock in order to be a part of that growth narrative.
Here are my three favorite streaming video stocks to buy not named Netflix:
Streaming Video Stocks to Buy: Facebook Inc (FB)
Social media giant Facebook Inc (NASDAQ:FB) seems like an obvious pick here. The company is a global internet platform with 2 billion-plus monthly active users, making it the largest over-the-top content distribution platform in the world. In this sense, all Facebook has to do to partake in the streaming video growth narrative is put a streaming service on its app.
Indeed, that is exactly what Facebook has done. Facebook Watch is the company’s new streaming service. They’ve put it front and center (second button from the left on the bottom of the app), so it’s hard to miss. That means 2 billion-plus people are looking at that button at least once a month.
Looking at Facebook Watch doesn’t translate into Facebook Watch becoming a big thing. But it’s a step in the right direction. And I do think that Facebook Watch will have a big 2018 thanks to its specific niche and wide reach.
Facebook is appropriately positioning Watch as a valuable tool for content creators to communicate with their audience. As opposed to pushing Watch as a new Netflix or the next YouTube, Facebook is pushing Watch to be a mix of both.
Facebook Watch, much like YouTube, is trying to deliver short-form content that builds deeply engaged communities around niche interests, like knitting, make-up or sports. But Watch, much like Netflix, is also trying to deliver professionally produced shows.
In this sense, Watch is two parts YouTube, one part Netflix. In that overlap, there is a giant market that has yet to be addressed in over-the-top entertainment. If you want to watch a show on-demand, you will tune to Netflix, but need 30 minutes to an hour to spare. If you want to watch something quick and easy, you will tune to YouTube, but there is a dearth of professionally produced shows on YouTube.
Where can you watch professionally produced shows that run around 15 minutes?
Facebook Watch. As demand for short-form, professionally produced content grows in 2018, Facebook Watch will emerge as a major player in the streaming video world.
Streaming Video Stocks to Buy: Alphabet Inc (GOOG)
Another obvious pick here is digital search giant Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). Much like Facebook, Google has a platform (YouTube) with a bunch of monthly users (1.5 billion). But unlike Facebook, YouTube isn’t a social platform at it’s core. It’s a streaming video platform.
In this sense, Google is already a part of the streaming video growth narrative through YouTube. But Google is about to become more immersed in the streaming video growth narrative than ever before thanks to YouTube TV.
YouTube TV is Google’s direct-to-consumer cable alternative. You pay a set monthly bill ($35) for access to 40-plus live-streaming channels (including all the big ones, like ABC, CBS, NBC, FOX, ESPN and FX). You also get unlimited cloud DVR space, 6 accounts per household, and can watch from a phone, tablet, TV or computer.
That is a pretty compelling value proposition. After all, the average cable bill is $100-per-month, and you don’t normally get unlimited DVR space, don’t get multiple accounts and can only watch from a television with a cable box. In other words, YouTube TV basically offers more for less (assuming you only watch major networks).
That is why YouTube TV has already crossed the 300,000 subscriber mark. With cord-cutting trends only accelerating, it seems natural that YouTube TV will continue to grow exponentially into the foreseeable future. Consequently, over the next several years, I expect YouTube TV to emerge as a leading player in the streaming video world.
Streaming Video Stocks to Buy: Walt Disney Co (DIS)
While my first two picks were technology companies, my last pick is a media company gradually morphing into a technology company.
Walt Disney Co (NYSE:DIS) has been at the wrong end of this whole cord-cutting trend for some time. The company owns a massive media business that has been adversely affected by lower traditional TV viewership.
But Disney still owns some of the best content in the world. Think ESPN, ABC, Star Wars, Marvel and Pixar. In totality, Disney’s content portfolio is quite robust and it has very high demand.
The problem was that Disney was pushing this content through traditional TV channels. But everyone is cutting the cord, so the company was pushing all this high-demand content through low-demand channels.
Disney is in the process of fixing this distribution issue. They are launching ESPN Plus this spring, a direct-to-consumer streaming service for sports fans. With ESPN Plus, you can now live-stream any game or content on ESPN’s family of channels.
More importantly, Disney is launching its own Netflix-style streaming service in 2019. That service will presumably act and look just like Netflix, but will have all of Disney’s movies. Again, think Star Wars. Marvel. Pixar.
Altogether, with its own streaming service and ESPN Plus, Disney will leverage its unparalleled content portfolio to become a major player in the streaming video world over the next several years.
As of this writing, Luke Lango was long NFLX, FB, GOOG and DIS.