Since the lows in the markets in March, media stocks have pulled off a powerful rally. Just look at the Invesco Dynamic Media ETF (NYSEARCA:PBS). During this period, PBS stock has gone from around $21 to the $52 level.
No doubt, the Covid-19 pandemic has had an adverse impact on many media companies. Things like live entertainment have decreased to minimal levels or even stopped altogether.
But with the pandemic, there has also been a surge in at-home activities. That has propelled the digital businesses of media companies, such as their streaming services.
So, what are some of the most interesting media stocks for investors right now? Well, here are seven that have stood out in the face of the novel coronavirus outbreak:
- ViacomCBS (NASDAQ:VIAC)
- Disney (NYSE:DIS)
- Warner Music Group (NASDAQ:WMG)
- Netflix (NASDAQ:NFLX)
- Facebook (NASDAQ:FB)
- AT&T (NYSE:T)
- Electronic Arts (NASDAQ:EA)
Media Stocks to Buy: ViacomCBS (VIAC)
Since late October, shares of VIAC stock have been in bull mode, going from around $29 to just below $54. But this is probably not the end of the rally.
The company’s streaming efforts are poised to see strong results this year. It also helps that ViacomCBS has several years experience building its CBS All Access and Showtime platforms. Those services have a subscriber base of nearly 18 million, up 72% on a year-over-year (YOY) basis.
Plus, now the company wants to expand on this even more, planning to rebrand the service as Paramount+. In addition to having a rich film library, it will provide live news and sports programming, too.
Additionlly, ViacomCBS has been ramping up its Pluto TV system, which is ad-based. This should see long-term growth and help alleviate the pain of cord-cutting from the cable businesses.
As for VIAC stock, its valuation is at attractive levels, with a forward price-to-earnings multiple at 12.83 and a dividend yield of 1.76%. Ultimately, though, the company could be buyout bait and may be absorbed by other media stocks — such as a mega tech company like Apple (NASDAQ:AAPL) or Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). An acquisition like that would be a quick way to bolster the business’s content offerings and subscriber numbers.
Disney may have been late to the streaming game, but that hasn’t really mattered much. The company’s Disney+ service has seen staggering growth. In about a year, its number of subscribers has exceeded 86 million. Disney also has an advantage in that it owns some of the most valuable franchises in the world, such as Star Wars and Marvel.
But there is more to this company than Disney+. The House of Mouse has also seen traction with its other streaming services like ESPN+ and Hulu.
All in all, these offerings will continue to provide Disney with recurring revenues as well as direct connections to its customers. That will allow for synergy with other parts of the company’s empire– from its theme parks and cruises to its hotels and merchandise.
Even though DIS stock has made strong gains during the past year, the bull case still looks intact. In fact, Citigroup analyst Jason Bazinet commented the following:
“We prefer Disney for two reasons […] First, as a late entrant, we think Disney has a quicker and easier path to sub growth over the next three years. Second, we suspect Netflix may have some hiccups over the next few quarters as price hikes potentially dampen quarterly net adds, tactically disappointing the Street. Disney, on the other hand, is apt to keep prices relatively stable.”
Along with that praise, Bazinet raised his price target on this pick of the media stocks from $175 to $205.
Warner Music Group (WMG)
Because of the internet, the traditional music industry has had to quickly evolve and adapt. But this has been a good thing. That need for innovation has allowed for more revenue opportunities.
This has certainly been the case with Warner Music Group, which came public last year. Right now, its shares are up about 52% from its all-time low to $38. WMG stock has a market capitalization of $19.9 billion.
The company owns some of the most iconic record labels, such Atlantic and Elektra. Moreover, its roster of artists boasts mega stars like Ed Sheeran, Bruno Mars, Lizzo and Cardi B, among others.
When it comes to adaptability, Warner was also one of the first major music companies to partner with digital operators like Apple, YouTube and Tencent Music Entertainment (NYSE:TME). Because of this, the company has been able to build a thriving growth business.
During the latest quarter, WMG’s digital revenues jumped by 17%. Because of this, Warner was able to show positive overall growth despite the impact of the pandemic on live entertainment and retail channels. That makes it a competitive name among media stocks.
In the early days of Netflix, there were several points where the company could have easily failed. At one point, the media company even attempted to sell itself to Blockbuster.
However, CEO Reed Hastings somehow found ways to fend off competitors and completely upend traditional entertainment, innovating the streaming industry. He also helped rethink content creation.
Now, Netflix is synonymous with streaming. The company’s latest earnings report also highlights that its growth story remains intact. During the fourth quarter, revenues rose by 22% to $6.6 billion and subscribers increased by 8.5 million to 203 million.
Moreover, the company also indicated that it would become cash flow positive in 2021, which was a nice surprise for Wall Street. Moving forward, Netflix plans to start paying down its debts and may even have buybacks for NFLX stock.
Granted, this one of the media stocks has a valuation that’s far from cheap, with its forward price-to-earnings multiple at 55.23. That said, NFLX stock does warrant a premium because of its powerful global brand and growth from the secular streaming trend.
Facebook CEO Mark Zuckerberg often refers to his platform as a utility. But this makes it sound kind of boring. The reality is that Facebook is a form of entertainment.
It’s also a massive business — and continues to grow at a robust pace. During the most recent quarter, its revenues increased by 31% to $27.2 billion and its net income came to $11.2 billion. What’s more, its daily active users were 1.84 billion, up 11% on a YOY basis.
Like the more traditional media stocks, much of FB’s revenues come from advertising. But this is likely going to change. Facebook has been investing heavily in its e-commerce efforts like Facebook Marketplace. There are also opportunities for subscription revenues. For example, the company recently acquired Kustomer for about $1 billion, a firm that develops software for businesses to manage their customer support on channels like online chat.
It’s true that FB stock is not necessarily cheap, with its forward price-to-earnings at about 24 times. But given the strength of the platform as well as the secular trends for social media and e-commerce, its premium is actually quite reasonable.
With its $85.4 billion acquisition of Time Warner in June 2018, AT&T has become one of the largest media stocks. Yet, the deal hasn’t done much for T stock. Over the past one year, shares have gone from around $38 to a little over $28.
However, investors may not want to give up on the company yet. For one, its WarnerMedia division will likely be a long-term growth driver. At the heart of this is the HBO streaming business, which has over 41 million subscribers in the U.S. and about 61 million worldwide. Since the third quarter of 2020, HBO Max activations have even doubled. For the current year, the company also plans to release plenty of movies — that should help boost subscriptions, too
In the meantime, AT&T’s mobile business also remains a nice source of cash flows. Because of the rollout of 5G, there will also probably be improvement down the line, with the company benefitting from trends like the Internet of Things (IOT).
Finally, T stock is definitely cheap right now. The forward price-to-earnings ratio is currently 9.18 and its dividend yield is an attractive 7.23%.
Electronic Arts (EA)
EA stock fell as low as 7.5% on the release of its earnings. But this looks like its due mostly to profit-taking. Keep in mind, this company has been on a nice bull run lately and its since recouped most of that loss.
More importantly, the good news is that growth should remain strong for EA, due in part to its pipeline of games. For the quarter, the company launched titles like FIFA 21, Medal of Honor: Above and Beyond and more. In fact, it currently has 35 games at different stages of production.
While the gaming industry can be fickle, EA has been able to deal with that by building massive franchises, similar to the Hollywood model. Many of those games fall under its EA Sports division, which has “engaged more than 230 million people” on its own over the past fiscal year. Moreover, the company has even struck a deal to relaunch its franchise based on college football. That will most likely be another big hit for this pick of the media stocks.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.