We may be living in a post-WandaVision world but media stocks continue to thrive in the remote economy. The proliferation of digital media has been on the rise in the last 12 months as we spend a larger part of the day in the confines of home.
Research shows that, on average, people spend nearly 13 hours a day consuming content in some form. For the media industry, the sudden increase in demand for its services led many businesses to rethink and pivot their business strategy to adapt to the changing trends.
While the sector is competitive, to say the least, companies that have proven to be innovative and resilient during tough times will thrive in the long haul. Here are seven media stocks shaping the future of entertainment:
- Netflix (NASDAQ:NFLX)
- Roku (NASDAQ:ROKU)
- Disney (NYSE:DIS)
- Discovery (NASDAQ:DISCA)
- ViacomCBS (NASDAQ:VIAC)
- AT&T (NYSE:T)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
Media Stocks: Netflix (NFLX)
The OG streaming service, Netflix experienced a strong rally this year as more people turned to the platform for entertainment during the novel coronavirus pandemic. In addition to being one of the first companies to introduce on-demand content, Netflix has held its top-dog position thanks to highly successful shows like Tiger King and The Queen’s Gambit that garnered a cult following.
The sheer scale of the company, coupled with its vast library of content, makes this media stock a long-term winner.
Adding to this success: the changing trends in entertainment are largely skewed in Netflix’s favor. The closure of movie theaters at the onset of the pandemic created an intrinsic shift in media consumption. Experts believe that the future of entertainment will be in people’s homes.
In the long haul, crowded movie theatres will be more of an anomaly than the norm. This bodes well for Netflix as it is a leader in the sector. In terms of finances, Netflix has taken on a lot of debt to fund its growth. But as the returns from the investments roll in, the stock is poised for long-term growth.
Roku is another media company that is at the top of its game. The streaming platform hit impressive growth rates and revenue numbers thanks to the lockdown-fueled in-home entertainment frenzy.
After ending 2020 on a profitable note, Roku is forging a path toward bigger gains this year. The company’s growth will be largely driven by its ad business. As streaming platforms continue to dominate the entertainment industry, advertisers are moving from traditional television to streaming. In an effort to increase ad revenue, Roku recently purchased Nielsen’s high-growth video advertising business.
On the numbers front, this media stock is among the biggest winners of the pandemic. During 2020, Roku amassed a user-base of 14.3 million accounts, bringing the subscriber count to 51.2 million. Revenue was also up a whopping 81% with users spending 17 billion hours on the platform.
Looking ahead, the company anticipates a 40% increase in growth, however, analysts remain more optimistic and predict a 49.6% spike. With streaming expected to dominate the entertainment industry in the future, Roku is well-positioned for greater momentum.
The House of Mouse pivoted its business model during the pandemic to focus on its streaming business, Disney+. The shift in media consumption was a boon for Disney as it was able to capitalize on its diverse lineup of characters and series. From Marvel to Star Wars, Disney+ was able to amass a large viewer-base and establish a loyal following. This is in addition to the media giant’s vast library of films.
Disney’s streaming venture was so successful that management decided it will play a key role in driving future growth.
The Disney+ subscriber count recently surpassed 100 million and the company estimates this will reach 260 million by 2024. The spike in users on the platform in the last 12 months also increased direct-to-consumer revenue by 73%. Disney isn’t trailing too far behind Netflix, which has a user base of 204 million. However, with household names like Pixar and Marvel under its belt, there’s good reason to believe the platform won’t take long to catch up.
The sheer scale of Disney’s content is reason enough to invest in media stocks like this one.
Media Stocks: Discovery (DISCA)
Discovery may have been late to the streaming game but this hasn’t stopped the company from posting some strong returns in the last 12 months.
After launching its namesake streaming platform Discovery+, the company’s shares soared more than 100%. The growth of this new service will be amplified by its in-house channels that have a loyal viewer-base. This includes Food Network, TLC and HGTV. Adding to this strong position is Discovery’s acquisition of Scripps Networks Interactive, which will help scale the company’s position in the market.
In terms of revenue, Discovery’s total earnings for 2020 were down year-over-year but this can be attributed to high growth expenses. However, with DISCA stock on an upward trajectory, these investments seem to be paying off. The company’s cash flow is also stable with its cable networks generating revenue of $10.67 billion.
With major growth potential in its streaming service, Discovery is a media stock that’s in for some big gains this year.
ViacomCBS operates a cable network that has a number of highly successful channels. These include BET, Comedy Central and Nickelodeon. The company has a large presence in the cable industry, given that its channels cater to a wide audience demographic. The recent acquisition of CBS will help the company grow and expand in the space.
However, with most customers cutting the cord, Viacom is reestablishing itself in the streaming space to better align with its long-term goals.
Last month, the company introduced Paramount+, its rebranded streaming platform. The service offers an ad-free and ad-supported subscription, and will feature programs from Viacom’s cable channels and streaming-only content.
With a greater emphasis on its streaming service, investors and analysts have shown renewed interest in the company. Viacom stock is up 117% since the start of the year and shows potential for greater upside ahead.
AT&T is one of the best media stocks for investors looking for a good undervalued media play this year.
In addition to a thriving communications business, the company also owns Warner Media, the name behind Warner Bros, HBO Max and Turner. HBO and HBO Max are among its more successful endeavors with more than 41 million subscribers. However, AT&T’s finances took a toll as the pandemic disrupted its movie and cable business. At the same time, competition in the streaming industry is heating up as cable TV loses its allure.
While the current position looks weak, AT&T also provides an attractive entry point while prices are low.
Meanwhile, the company plans to launch an ad-supported version of HBO Max, which will improve its revenue numbers. HBO Max is also working on diversifying its content to reach a wider audience base. This will be amplified by the eventual reopening of movie theaters. That will allow AT&T to generate revenue from its movie production business.
The stock doesn’t look too good right now but the potential tailwinds hint at a brighter future.
Media Stocks: Alphabet (GOOG) (GOOGL)
Alphabet isn’t among your run-off-the-mill media stocks, but it does have an important weapon in its toolkit – YouTube.
After Alphabet acquired the company in 2006, YouTube has seen phenomenal growth, especially with its subscription service YouTube TV/Music. It currently holds the title of the second most popular site on the internet. Few companies are able to mimic the network effect the platform has created.
There’s no denying the growth potential of online video-streaming. Google’s CEO Sundar Pichai announced that more than half a million channels live-streamed in 2020 for the first time. YouTube also generated $6.89 billion in revenue in the fourth quarter of 2020, which was up 43% from the previous year.
In addition, Alphabet’s other businesses, such as the Google Cloud, will amplify the company’s growth making this media stock a great buy this year.
On the date of publication, Divya Premkumar held a long position in DIS stock. She did not hold (either directly or indirectly) any positions in the other securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.