The streaming revolution has taken many in the entertainment industry by surprise, but just about everyone now realizes that the trend is secular. It’s a must-win business for AT&T (NYSE:T) as AT&T stock continues its lackluster behavior, this is a real opportunity.
So far, the main pure-play has been Netflix (NASDAQ:NFLX), yet the valuation is, well, rich. Consider that the forward price-to-earnings multiple is 62X and the market cap is a hefty $160 billion. During the past ten years, NFLX stock has logged an average return of a sizzling 50.96%!
But going forward, it could get difficult to gin up these types of gains. This is especially the case since competition is crowding the streaming space, with offerings from Hulu, Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) YouTube, Amazon.com’s (NASDAQ:AMZN) Prime, CBS’s (NYSE:CBS) All Access and so on.
Kind of crazy, huh? Yep. But it is validation that the market for streaming is real and massive.
So how can investors play this? Actually, I think there will ultimately only be a handful of winners and they will have deep content libraries and pipelines. This is why I’m bullish on DIS, but the same goes for AT&T.
Streaming and AT&T Stock
True, the company has its issues. The debt load is massive. There is also the cord-cutting that continues to plague the DirecTV division. And of course, AT&T stock has been a perennial loser. For the past five years, the average annual return was a meager 3.56%.
Yet despite all this, I think it’s important to keep in mind that AT&T is a much different company nowadays. More importantly, it looks poised to benefit nicely from streaming, which should be a strong catalyst.
All this is due to the gutsy $81 billion acquisition of Time-Warner. Through this, AT&T has created the WarnerMedia division, which has marque assets like a tier-1 studio – which has produced recent hits like Aquaman and A Star is Born – as well as cable properties, such as TNT, TBS, HBO and Adult Swim.
So what about the streaming service? At first, the plan was to create three different offerings. But it looks like AT&T management has nixed this because of the complexity. Instead, it appears there will be one platform that will have a monthly subscription fee of $16 to $17 (this is according to a report in the Wall Street Journal).
This may sound kind of low, but this should allow for a much larger customer base. Let’s face it, NFLX has built an empire on low-priced subscriptions.
AT&T also has another big-time advantage: It’s enormous distribution. Consider that it has over 370 million direct-to-consumer relationships across mobile, pay-TV, web properties and broadband. In other words, there is likely to be significant uptake for the streaming service.
Bottom Line on AT&T Stock
When it comes to AT&T stock, the streaming service is not the only catalyst. For example, 5G should be a nice driver for growth and margins. It will also help with its streaming business and the enterprise segment, which has been a good source of cash flows. AT&T’s development of the FirstNet system, which leverages 5G for first responders, is another key.
And finally, AT&T is downright cheap – trading at a forward price-to-earnings multiple of 9X – and the dividend is at an attractive 6.30%. So all in all, this is pretty good for a company that is positioned to benefit from several megatrends.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.