The market for streaming services grew well over 35% in 2020. According to Grand View Research, the global video streaming market was worth over $50 billion in 2020. And until 2028, it is expected to continue increasing at a compound annual growth rate (CAGR) of more than 20%.
Such growth in the sector meant significant increases in shares of streaming stocks in 2020 and part of 2021. However, 2022 has started on a down note for most technology shares. Now, many investors wonder what might be next for these high-growth names.
Despite the recent decline, there are still great opportunities to invest in this industry. Therefore, today’s article focuses on three streaming stocks to buy now for potentially high returns in 2022:
- Netflix (NASDAQ:NFLX)
- Roku (NASDAQ:ROKU)
- Roundhill Streaming Services & Technology ETF (NYSEARCA:SUBZ)
Streaming Stocks: Netflix (NFLX)
52-week range: $351.46 – $700.99
In the competitive U.S. market, entertainment services platform Netflix has well over a 20% market share among streaming service providers. It is well-known for its offerings that include a wide range of films, TV series and documentaries in numerous languages. It is equally renown for its recommendations engine that can find just the right series for any viewer.
For many years, Netflix has enjoyed a first-mover advantage in streaming services and built a successful subscription model. Meanwhile, in 2021, management spent about $17 billion to build original content.
Netflix issued fourth-quarter 2021 financial results on Jan. 22. Revenue was $7.7 billion, compared to $6.64 billion a year ago. About 60% of total revenue comes outside the U.S. Net income was $607 million, or $1.33 per diluted share, compared to net income of $542 million or $1.19 per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $6.02 billion.
“Even in a world of uncertainty and increasing competition, we’re optimistic about our long-term growth prospects,” Netflix said in a letter to shareholders. The company ended the year with 222 million paid memberships, where 8.3 million new subscriptions came in Q4.
Management also updated its outlook for the start of 2022. It now expects 1.5 million less subscribers in Q1 2022 than in the prior-year quarter, mostly due to the recent increase in subscription prices.
NFLX stock currently hovers around $380, down 37% year-to-date (YTD). Shares are trading at 30.8 times forward earnings and 6.3 trailing sales. The 12-month median price forecast for NFLX stands at $530. Interested readers could consider buying into the declines.
52-week range: $139.47 – $490.76
Roku is the largest connected TV (CTV) platform with over a 50% market share in the U.S. The firm’s operating system is used not only in Roku’s own hardware but also in co-branded TVs and soundbars from manufacturers like TCL (OTCMKTS:TCLHF), Walmart’s (NYSE:WMT) generic brand Onn, or Hisense Home Appliances Group (OTCMKTS:HNKLY).
Roku released Q3 2021 financial results on Nov. 3. Revenue surged 51% year-over-year (YOY) to $680 million. Net income was $68.9 million or 48 cents per diluted share, compared to last year’s net income of $12.9 million or 9 cents per diluted share. Cash and equivalents ended the period at $2.17 billion.
Investors were pleased to see that Active Accounts came in at 56.4 million, up 1.3 million sequentially from Q2 2021. Also the Average Revenue Per User (ARPU) reached $40.10, an increase of 49% YOY. Long-term investors would agree that Wall Street would like to see an expansion in ARPU for ROKU stock to create shareholder value in future quarters.
“Looking ahead, our business fundamentals remain strong but we are mindful that the challenges created by the global supply chain disruptions will likely continue into 2022,” Roku said in the letter sent to shareholders.
The company’s outlook for Q4 is for strong growth with total net revenue of $893 million at the midpoint (up 37% YoY). Management also expects total gross profit of $385 million at the midpoint (up 26% YOY).
ROKU stock changes hands around $160 territory, down over 30% since the start of 2022. Shares are trading at 78.4 times forward earnings and 7.1x trailing sales. The 12-month median price forecast for ROKU stands at $360. If you agree with analysts’ bullish forecasts, February might be a good time to buy Roku shares for the long-run.
Streaming Stocks: Roundhill Streaming Services & Technology ETF (SUBZ)
52-Week Range: $7.43 – $16.46
Expense Ratio: 0.75% per year
Our next choice is an exchange-traded fund (ETF), namely the Roundhill Streaming Services & Technology ETF. It invests in global streaming businesses.
SUBZ, which has 40 holdings, started trading in February 2021, The fund’s top 10 holdings account for 42% of net assets of $18.1 million in assets, versus the FactSet Segment Average of 57.03%. In other words, it is a small and relatively new fund.
In terms of the sub-sectoral breakdown, the Video streaming sector makes up the highest portion with 40.7%, followed by Technology (22.0%) and Audio Streaming (13.5%) sectors.
Entertainment heavyweight Disney (NYSE:DIS) is the largest holding, at 6.26%, and Discovery (NASDAQ:DISCA) follows, at 4.62%. Meanwhile, audio streaming service Spotify Technology (NYSE:SPOT) is in third place, at 4.45%; media and technology group Comcast (NASDAQ:CMCSA) is at 4.44%; and, media and entertainment companies ViacomCBS (NASDAQ:VIAC) at 4.40%.
The ETF currently trades around $8.30, down over 15% YTD. Since the start of 2022, a large number of names in the portfolio have become victims of the changing investor sentiment toward growth shares. Yet buy-and-hold investors could find value at these levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.