Media stocks have been slammed over the past few weeks as the novel coronavirus outbreak — formally dubbed COVID-19 — brought the global economy to a screeching halt. The Invesco Dynamic Media ETF (NYSEARCA:PBS) has dropped more than 30% from its February highs.
Amid this wide sell-off, I’ve gone shopping for opportunities in the media sector.
After all, the coronavirus pandemic won’t last forever. Nor will the economic disruption it caused. Instead, it increasingly appears that the pandemic may already be peaking globally, and could even disappear by summer.
And once the pandemic does pass, there’s plenty of monetary and fiscal stimulus in the pipeline — and enough pent-up consumer demand — to fuel a rebound in the economy and the media sector.
In my search for media stocks to buy on this dip, I’ve found a few that are worth looking at here and now for long-term investors. Those strong media stocks to consider include:
Without further ado, let’s take a closer look at these three strong media stocks, and see why they are worth considering for long-term investors.
Strong Media Stocks to Consider: Netflix (NFLX)
Shares of streaming giant Netflix have fared much better than other media stocks during the coronavirus pandemic. This resilience will persist, and translate into longer term strength.
There are really three big ideas behind the bull thesis on NFLX stock here and now.
First, Netflix will report a series of consensus-beating quarters in 2020 on the back of robust subscriber growth. That’s because the company’s streaming service is the best at-home entertainment option and most consumers across the globe are stuck inside right now. Those that have Netflix, will watch more Netflix. Those that don’t, will be compelled to sign up.
Second, Netflix will report a series of consensus-beating quarters in 2021, too. That’s because the coronavirus tailwind will have long-term effects. Namely, Netflix will start to establish dominance in certain international markets, and such dominance will lead to more robust subscriber growth thanks to reputation. Even further, increased engagement in 2020 paves the path for Netflix to hike prices in 2021 with relatively low churn, thereby providing an immediate revenue and margin boost.
Third, Netflix has huge long-term growth potential in the secular growth streaming TV market. That is, the whole world is pivoting from linear TV to streaming TV. Netflix is the unparalleled leader in streaming TV. Yet the company only has 167 million subscribers, a small fraction of the more than 1.3 million internet households in the world.
Big picture — Netflix is a long-term winner, that will keep winning because of the coronavirus pandemic. That makes NFLX stock a strong buy here and now.
One media stock which has been killed amid the coronavirus pandemic is Disney. Yet, of all the media stocks in the world, Disney may be the strongest.
This simple discrepancy between near-term weakness in DIS stock price, and long-term strength in the Disney brand, is why shares look compelling amid recent weakness. Once the economy bounces back, Disney will, too, and with exceptional vigor.
With respect to its Media Networks business, televised live sporting events have a chance to make a return by summer, and linear TV ad spending trends should normalize in the back-half of 2020 as the virus fades. Meanwhile, Disney’s theme parks should also re-open in the back-half of the year, and there’s a chance that pent-up consumer demand turns into much better-than-anticipated second-half 2020 park attendance.
Movie theaters will also re-open. Disney’s box office business will rebound. And Disney+, Disney’s new streaming service, should continue to grow throughout all of this, thanks to its positioning as a strong at-home entertainment option.
All together, then, current weakness in Disney is ephemeral. The company’s businesses will bounce back in the second half of the year. So will DIS stock.
Although not usually lumped in with other media stocks, online dating behemoth Match is nonetheless an attractive media stock to consider amid current weakness, for three big reasons.
First, through its portfolio of dating app/platforms including Match.com, Tinder, Hinge, OKCupid, and PlentyOfFish, Match has established an unchallenged monopoly of sorts in the online dating industry. That industry is a secular growth one, with increasing usage and increasing consumer willingness to pay for premium services. Consequently, Match’s dominant positioning in a secular growth market paves the way for this company to sustain robust revenue growth for the foreseeable future.
Second, thanks to a favorable margin profile, robust revenue growth at Match will translate to robust profit growth. That is, the company operates at 70%-plus gross margins, with a small required expense base since the company doesn’t need to spend big on research, development, and marketing given the dearth of formidable competition. As such, overall profit margins have tremendous room to scale over time. Big revenue growth will turn into bigger profit growth.
Third, Match’s main revenue source isn’t ad-based. About 98% of revenues come from consumer subscription sales. Those subscriptions should be relatively insulated from coronavirus-related economic disruption.
Overall, Match has several attractive attributes for both near- and long-term investors. As such, recent weakness in MTCH stock looks more like an opportunity than anything else.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.