Here are six of the top music and video streaming stocks.
Streaming is the future for online video and music. Twenty years after physical music and movie sales peaked, the internet has finally replaced these revenue streams. Meanwhile, the cord-cutters continue to hammer revenues for existing TV and cable channels. Thus, it’s vital for media companies to win the streaming game — but there aren’t enough seats at the table for everyone. Numerous streaming services have debuted in recent years and consumers don’t have time or money to spend on all of them. With that in mind, here are six of the best streaming stocks to buy, each with enviable odds of longer-term success in this fiercely competitive arena.
Netflix (ticker: NFLX)
Netflix stock is on a downswing following its recent underwhelming earnings report. That said, don’t give up on the king of streaming just yet. It’s only natural that subscription growth would slow down once the stay-at-home period ended. Plus, Netflix faces a shortage of new shows to debut, given that the pandemic delayed new productions. Netflix isn’t to blame for these issues. Regardless, the company is treating shareholders well. Thanks to a rise in cash flow, Netflix has now authorized a large share buyback. That’s right, after years of short-sellers calling it “Debtflix” and saying the business model would never work, co-CEO Reed Hastings is sticking it to the skeptics. Long-term investors will barely remember this sell-off in Netflix stock, and the streaming company still dominates online video.
The Walt Disney Co. (DIS)
Disney may be the biggest winner from Netflix’s slowdown. Streamers that rely on new shows currently face a content cliff as filming was halted due to the virus. Disney, with its unmatched catalog of popular older shows, won’t face nearly the same impact. Since Disney+ launched in November 2019, DIS stock has been the second-best performer among the major streaming stocks, trailing only Netflix. With Disney now ramping up its advertising spending and Netflix hitting a new subscriber slowdown, the House of Mouse has a golden opportunity to cement its status as a top-tier power in the streaming game. The company’s diverse lines of business, such as theme parks and merchandise, also offer robust cash flows to shelter it from a nasty pricing war within the streaming arena. Disney’s other businesses are also reopening now, making this an attractive entry point for Disney stock.
ViacomCBS is emerging as a potential power player in the streaming wars. The company launched Paramount+, a rebranded and reconceived version of CBS All Access, offering a vast content library spanning film and TV. Previously, Viacom had struggled to adapt to the new media landscape. However, growing momentum for its streaming service lifted shares from $20 to as high as $100 recently. The sudden implosion of Bill Hwang’s Archegos Capital Management in March caused a collapse in Viacom’s share price as banks unloaded Viacom shares by the millions. That forced selling has knocked Viacom back to around $40, offering a second opportunity to enter a position on the cable giant as it continues its transformation into a streaming leader.
Spotify Technology (SPOT)
Music streaming is also a booming sector. Spotify’s paid subscriber base has tripled since 2017, hitting 155 million users in the fourth quarter of 2020. The company has become far and away the leading player in streaming globally, though Apple Music is right up there in the U.S. Spotify is using its overwhelming market share to build a broader ecosystem. It’s now starting paid advertising programs to boost new artists, which could turn into a huge revenue stream. It’s also making an aggressive push into podcasts as it reduces its reliance on major record labels. Critics have long worried about the high royalties Spotify pays to record labels. However, its growing market share has given the company increasing bargaining power. Like Netflix, Spotify should soon turn into a cash flow story, rewarding early investors who bought before the firm reached strong profitability levels.
Apple is a multifaceted streaming play. It’s No. 2 in music streaming, trailing only Spotify. And the company has joined the video streaming contest as well. Its Apple TV+ offering is available at an affordable price point and features an increasing mix of its own and licensed content. So far, Apple TV+ isn’t taking the world by storm, but it has quietly attracted more than 10 million members. The company’s second-to-none brand and massive budget ensure it will be competitive in the streaming game if it invests the resources to do so. There’s one other underappreciated angle: the App Store. Since Apple gets a 30% cut of payments made through iOS, it gets to charge a sort of tax on some streaming applications as well. And, like Disney, Apple has tons of other businesses, insulating it from downside if its streaming ambitions don’t pan out.
Tencent Music Entertainment Group (TME)
Finally, for growth investors, there’s Tencent Music. This streaming service aims to be the Spotify of China, and judging by early results, it’s a rousing success. Tencent Music controls three of the five top music apps in China, and offers ancillary functions such as karaoke in addition to just playing music. It has a hybrid model, profiting from subscriptions, ads and live-streaming revenues. Since 2017, total revenues have exploded from $600 million to $4.5 billion annually. Tencent Music already generates strong operating profits as well. However, shares recently got whacked as part of the Archegos Capital Management implosion last month. TME stock plunged from $30 to $17 and has hardly recovered since. This puts Tencent Music at about 27 times projected 2022 and 20 times 2023 earnings for a business growing top-line revenues more than 20% annually.
Six leading streaming stocks to buy:
— Netflix (NFLX)
— The Walt Disney Co. (DIS)
— ViacomCBS (VIAC)
— Spotify Technology (SPOT)
— Apple (AAPL)
— Tencent Music Entertainment Group (TME)
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