The way we consume digital entertainment has changed drastically over the last decade. Streaming has stolen the show, while cord cutting has caused some legacy entertainment providers to struggle. Media stocks are in focus now more than ever.
Making things all the more interesting? The novel coronavirus.
When Covid-19 came along, it drastically accelerated streaming and the demand for digital entertainment. Particularly in the early days of the pandemic, these companies saw incredible demand — years worth of demand pulled forward to today’s levels.
As a result, that has thrust these names in the spotlight and made them more important than ever. Let’s look at a few must-know media stocks for 2021 and beyond.
- Netflix (NASDAQ:NFLX)
- Roku (NASDAQ:ROKU)
- Disney (NYSE:DIS)
- Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG)
- AT&T (NYSE:T)
- Comcast (NASDAQ:CMCSA)
- Curiositystream (NASDAQ:CURI)
Media Stocks for the Next Decade: Netflix (NFLX)
Netflix is the pioneer in the media shift. The company has disrupted this space twice now. The first time, Netflix did so with its mail-in movies, as companies like Blockbuster failed to adapt.
However, Netflix’s rise hasn’t been a straight line. The company saw its stock fall from a split-adjusted high near $43.50 in July 2011 to a low near $7.50 in 13 months. That 82.5% haircut really created some doubt with investors.
Now though, Netflix has become a content and media juggernaut. It’s the go-to streaming platform among consumers, while it continues to gain momentum in the international markets.
During the company’s most recent earnings report, Netflix said it had more than 200 million subscribers. While it costs a lot to generate content and even though competition continues to increase, Netflix will remain a staple in the media landscape.
Its brand is too strong and its product is too sticky. Think about it. When times are good, Netflix’s customers won’t think twice about coughing up a few bucks for streaming. When times are tight though, who’s going to cut Netflix out of their lives, as it’s one of the cheaper streaming options out there?
Roku has cemented itself as the dominant platform in providing streaming services. The company’s products allow customers to access Netflix, Hulu, Apple (NASDAQ:AAPL) TV and a whole host of other services.
Roku’s solutions are simple, too. Some consumers may opt for a streaming stick or high-definition box. Others will opt for built-in Roku devices with their smart TVs. It doesn’t matter: Roku dominates both of these markets and has a significant lead in both.
For what it’s worth, it also offers other products, like sound bars.
But the opportunity isn’t in hardware, it’s in the platform — and that’s what bears have been missing. It’s not about the streaming sticks and other hardware (which attracts a lower, commoditized valuation). It’s about the platform and its software-like scalability (that also brings a higher valuation with it).
As it takes a portion of sales from its providers, Roku has a direct stake in the growth of streaming. As streaming grows, so does Roku. Further, the company generates ad revenue on its Roku channel. Essentially, it provides “free” programming to its customers, including shows and movies. However, the company uses ads to generate revenue from this channel.
Additionally, Roku recently purchased Quibi’s video content in a hint that it may build on those content offerings, while it continues to expand internationally.
This may sound bad, but Disney has a massive silver lining to Covid-19. While its hospitality business, parks and ESPN units were hit hard in the beginning of the pandemic, the company’s recently-launched Disney+ platform has seen massive growth thanks to the coronavirus.
While its parks will eventually get back to pre-pandemic levels, it appears that Disney+ has seen years worth of subscribers join the service in just a few quarters.
Disney+ launched in November 2019. It hasn’t even been five quarters and the company has almost 100 million subscribers already. Don’t forget, Disney also has ESPN+ and Hulu, which currently have 12.1 and 39.4 million subscribers, respectively.
By 2024, Disney expects to have between 230 million and 260 million subscribers, “more than triple its previous forecast.” One firm estimates Disney will have almost 300 million subscribers by 2026 and become the largest streaming platform in the market.
So while the company’s other businesses have struggled, this unit has been thriving. After its acquisition of Fox, Disney not only bolstered its content library, but also its stake in Hulu.
The king of entertainment just thrust itself back toward the top when it comes to the future of media stocks.
Alphabet (GOOGL, GOOG)
Alphabet isn’t one of the traditional media stocks on this list. It doesn’t have HBO or another long-standing content platform. It also doesn’t have a dominant position in streaming devices, like Amazon (NASDAQ:AMZN) or Roku.
In hindsight, Alphabet really should have tried to acquire Roku.
In any regard, do you know what Alphabet does have? YouTube, which has also grown to YouTube TV as well.
Now YouTube was a savvy acquisition of Alphabet, which bought the platform for $1.65 billion in 2006. Its now the second-most popular site in the world, behind Google.com. Its online videos can be humoring, entertaining, educational, engaging and insightful. It’s become a go-to place for people all over the world and as it gains in popularity, so does its profitability.
Now offering YouTube TV, the company has been looking to disrupt the traditional cable business. It offers an easy-to-use cable-like video platform for those seeking a similar video entertainment service in an over the top (OTT) format that makes it easy to use on the go or at home.
With these two assets alone, Alphabet is well positioned for the next decade.
AT&T still seems like an undervalued media stock. I don’t mean that from purely a valuation standpoint, although the stock is pretty cheap on that basis as well.
However, what I really mean is investors seem to be underestimating the media side of the business. Traditional AT&T is a decent business with strong cash flow and the stock provides a very strong dividend yield north of 7%.
Although the company has made some poor acquisitions in the past, it has made some great ones as well. Specifically, its decision to scoop up TimeWarner should be viewed as a massive victory.
Not only has TimeWarner given AT&T a significant boost to its free cash flow (securing the dividend), it also gave AT&T access to HBO, a vast library of media content and all of the company’s future studio releases.
Now AT&T is seeing strong momentum in HBO Max, its latest platform overhaul. Even better, HBO Max is now available on Roku and Amazon Fire TV. Broader access to HBO Max via the two most popular platforms should only aid in its momentum, which will in turn drive growth for AT&T.
Last but not least, this year’s studio releases will also be available on HBO Max. Once that starts to play out, it’s possible AT&T gets more credit for its assets and its stock price reacts in kind.
Comcast is the latest legacy provider to dive into the streaming world. As a result, it’s found itself on our list of media stocks to watch.
What makes Comcast so interesting? It’s now a trifecta on video consumption. It has traditional cable offerings and it’s an internet provider, which is essential for at-home streaming. So even if consumers aren’t paying for any of Comcast’s other services, its internet can make other streaming services a reality.
Lastly though, Comcast recently launched Peacock, which actually packs quite a punch when it comes to content. When the platform was gearing up for launch in the first half of 2020, I was skeptical of its potential, particularly as competition was rising.
However, once I checked out its offerings, it seems possible that Peacock will be able to hang with the big boys. Further, with its free (ad-based) and premium offerings available, Comcast could have a real opportunity here.
Even better? Analysts expect solid growth over the next few years, while its dividend yield sits near 1.9%.
We have a pretty formidable list of media stocks with this lineup of companies and platform providers. Of this group, Curiositystream is certainly the most speculative. However, with that speculation comes opportunity.
With its $930 million market capitalization, Curiositystream is by far the smallest name on this list as well. In fact, it’s about sixty times smaller than the next largest company here, which is Roku and its $60 billion market cap.
Curiositystream recently came public via a SPAC offering. Even more recently (in February), the company raised $140 million in additional capital. This was an important step, bringing more scrutiny to Curiositystream’s financials and business model. Further, it padded the balance sheet and provided additional working capital.
Unlike Netflix and many other big-budget content producers, Curiositystream has a different take. Its documentaries, educational series and lack of big-name performers is helping to keep its costs down.
While this may seem to lack potential, analysts seem to have a different take. Consensus estimates call for revenue to climb 81.5% from roughly $40 million in sales in 2020 to $72 million in 2021. In 2022, estimates call for an acceleration in growth, up to 86%.
Keep in mind, these are just estimates. However, if it comes to fruition, Curiositystream will rack up $133.8 million in revenue in 2022.
On the date of publication, Bret Kenwell held a long position in CURI, T and ROKU.