2023 was, in many ways, a challenging year for the media industry. With the decline of traditional distribution channels such as physical media, movie theaters, and cable TV, content producers must shift their business models dramatically to adapt to the changing times. This could mean it’s time to bet on streaming stocks.
Online advertising models have also come under pressure. Increasingly, media companies are moving to subscription models, leading to uneven results. Firms like Walt Disney (NYSE:DIS) have seen their shares sharply underperform as they struggle to transform their businesses.
It’s not all bad news, however. Three streaming stocks have navigated these challenges well and can generate sizable profits for shareholders going forward.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) deserves a great deal of credit for popularizing streaming as a business model.
The company boldly pivoted from its DVD-by-mail business to online streaming back when physical media was still king. Netflix also understood the value of original proprietary content, launching hit shows such as Orange is the New Black and House of Cards, which drove tons of new subscriptions.
Netflix has had ups and downs over the years. Analysts are arguing that Netflix is spending too much on original content, much of which is of mediocre quality. That may well be true.
But Netflix’s huge content library and vast amount of content in various foreign languages has given Netflix a larger and stickier user base than its peers. As the video streaming market consolidates, Netflix should be the biggest winner.
Spotify (SPOT)
Spotify (NYSE:SPOT) is for music, what Netflix is for movies.
While other players are in the streaming music space, Spotify has established a dominant position in many markets. The company has a solid footing in Latin America, with Mexico and Brazil joining the United States as the company’s top markets, with several daily streams to start in 2024.
The company’s presence across Europe, North America, and various emerging markets means that Spotify has a huge addressable market. Spotify’s monthly active users (MAUs) grew 26% year-over-year in Q3 to 574 million. Premium subscribers surged 16% to 226 million. Given Spotify’s extensive reach in large emerging markets, there’s a good chance this will be a billion-user company within a few years.
Spotify is still running around breakeven profitability, which scares some investors. But the company recently engaged in a large round of layoffs and has signaled that it is pushing for more robust earnings. Given its large and rapidly growing user base combined with a focus on costs, Spotify should be set to make sweet melodies for its shareholders going forward.
Tencent Music (TME)
Spotify isn’t the only name in music streaming to be aware of. In China, Tencent Music (NYSE:TME) has built a broad music streaming business with QQ Music, Kugou Music, Kuwo Music and WeSing apps.
Tencent Music doesn’t just offer music-on-demand; it also offers adjacent services such as karaoke, content sharing, music videos and concerts, and so on. The company has 594 million MAUs for online music, including 103 million paying users.
Tencent Music’s revenues dipped in 2023 amid a downturn in the Chinese economy and advertising market. However, the firm’s subscription revenues jumped sharply, indicating that Tencent Music is building a loyal user platform despite the current economic headwinds.
TME stock has rallied following its most recent earnings report. Even after the jump, however, shares are still going for less than 18 times forward earnings. That makes for a solid entry point on this leading Chinese streaming platform.
On the date of publication, Ian Bezek held a long position in SPOT stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
