People are streaming more than ever. And it makes sense. The novel coronavirus pandemic has forced a sizeable chunk of the world population to shelter in. With so many people hunkered down, streaming companies are having a field day. Entertainment stocks are rising exponentially as a direct result of this trend.
But the investment landscape can be a bit confusing. Some companies out there are pure-play streaming services, while others are more diversified. However, the future is streaming, and entertainment companies are investing heavily in content creation to keep one step ahead of the competition.
That’s why with every passing day, you will get to hear about a new content streaming service. But what does it mean for you, the investor? Should you go ahead and blindly invest your hard-earned cash into a newborn company? Or, should you park your capital in a more stable, reliable investment?
I tend to skew toward the latter. That’s why I’ve curated a list of the top three entertainment stocks that I believe deserve your attention. (Hint: They have excellent fundamentals.)
Entertainment Stocks: Netflix
We start with arguably the biggest streaming company in the world.
Netflix didn’t pioneer the streaming model, but it did perfect it. In the third quarter of 2020, Netflix had 195.15 million paying streaming subscribers worldwide, making it one of the world’s biggest entertainment companies.
Let’s face it; the cable business is dead. And the future lies with companies, like Netflix, that can harness the power of content and monetize it. Their success has to do with a consistent strategy and being in the right place at the right time.
Now that the company is such a rousing success, one can easily forget that Netflix started streaming content way back in 2007. Getting there first was a huge advantage for the company, but it did not rest on its laurels.
Instead, it poured capital into content creation, and its projected 2020 spend stood at $17.3 billion. Granted, this amount took a hit after the pandemic, with Netflix slashing its content creation spend by 10%, but it’s still spending a lot of cash to engage users. And the success of original series like Stranger Things and Orange Is the New Black is translating to new subscribers. In the first quarter alone, there were reportedly 16 million new subscribers to the platform.
There are few names as recognizable worldwide as Disney. With roots going back to 1923, it is one of the oldest and most successful American companies in history. Its success lies with evolving alongside the times when a lot of media companies couldn’t cope.
The conglomerate has also not shied away from major acquisitions and mergers, gaining valuable IPs in the process. Whether it be the latest Avengers picture or a Disney theme park, it seems you can’t escape the company, no matter where you live.
One of the final frontiers left was streaming. Like Netflix, the company has aggressively made inroads in this area with Disney+, ESPN+, and Hulu. I find Disney+ to be the most interesting of the lot, considering its extensive library.
That’s the great thing about Disney. It doesn’t need to spend so much on producing content as compared to Netflix. It already has a massive budget earmarked for content across platforms. Once the latest Disney film completes its run at the box office, it finds new life on the streaming platform.
Even then, Disney+ is spending between $1.5 billion and $1.75 billion on new content this year. That should keep filling the company’s coffers while helping you remain entertained during the pandemic.
When you talk about a conglomerate as vast as Amazon, it’s tough to nitpick and point out just one thing that’s driving its sky-high valuation. The company was one of the major gainers during the pandemic, as its logistics model became the world’s envy.
Just like Disney, wherever you look, you find Amazon involved in some way. Why should the entertainment business be any different? Amazon Prime, the company’s paid subscription program, now has more than 150 million subscribers worldwide. Not too shabby, even though Jeff Bezos wouldn’t like playing second fiddle for long. That’s why Amazon laid out a strategy to spend $7 billion on content this year.
That means plenty of new series and feature films to feast on while you wait for things to get back to normal. From the valuation perspective, AMZN stock is never cheap. But you get a lot of bang for your buck if you invest in the company, so the premium pricing should never worry investors.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.