With actors and entertainment writers on picket lines, now may seem like an odd time to be recommending streaming stocks. In fact, a recent CNBC headline declared, “The media industry is in turmoil.”
“Traditional TV is dying. Ad revenue is soft. Streaming isn’t profitable. And Hollywood is practically shut down as the actors and writers unions settle in for what is shaping up to be a long and bitter work stoppage,” the July 17 article read.
Yet, two of the three streaming stocks below have handily outperformed the broader market so far in 2023. Even if the strike drags on and content begins to dry up, the major players are likely to sustain and may even get a boost once Hollywood gets back to work and resumes churning out new content.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) is up more than 50% so far in 2023 compared with an 18% advance for the S&P 500.
If you’re one of the 221.44 million Netflix subscribers worldwide, you’re likely aware that the company recently began cracking down on password sharing. It also introduced an advertising-supported tier.
Analysts have cheered these moves, which they say demonstrate that Netflix is a maturing company. In fact, UBS analysts recently raised their target price on NFLX to $525 from $390, implying upside of 10.6% from the current level. The analysts also say the streaming company is likely to beat its second-quarter earnings and subscriber guidance when it reports its latest quarterly results tomorrow.
If early reports are any indication, Netflix’s password-sharing crackdown is working brilliantly for the company.
“Since alerting its members in late May of its new password sharing policy, Netflix had its four single largest days of signing up U.S. customers since data provider Antenna began tracking the service,” CNBC reported on June 9. “In that time, Netflix has seen nearly 100,000 daily signups on two of the days, according to the report from Antenna.”
Netflix remains the king of streaming with a long and growing list of hit shows like “Stranger Things,” “Squid Game” and “Bridgerton,” to name a few. If investors are lucky enough to get a post-earnings pullback, they should take the opportunity to buy the dip in NFLX stock. But understand that the dip may not come.
Walt Disney (DIS)
Walt Disney is perhaps the contrarian way to invest in streaming. Unlike the other streaming stocks on today’s list, DIS is struggling, down 10% over the past year and more than 50% over the past two years. In fact, shares are trading just a hair above their 52-week low.
Disney’s current struggles are numerous. It missed analyst estimates for its fiscal second-quarter earnings and Disney+ subscribers. Crowds are lighter than usual at its theme parks this summer, and the company is in an ongoing feud with Florida Gov. Ron DeSantis.
Yet, analysts at Wells Fargo see tremendous value in the stock. In April, Wells Fargo’s Steven Cahall called the stock the “best opportunity in media,” saying the company had a chance to “meaningfully improve” streaming profits, MarketWatch reported. More recently, the analyst said DIS shares could rally 60% in the next 12 months.
Wells Fargo’s latest bullish note to clients came after Disney Chief Executive Officer (CEO) Bob Iger hinted that the company may divest its traditional TV assets like ABC and ESPN.
Iger’s return to Disney in November, after previously holding the top job from 2005 to 2020, was cheered by analysts and investors. Last week it was announced Iger would extend his contract with Disney for an additional two years through 2026.
Iger will continue to work hard to restore Disney to its former glory. He’s been reining in expenses and looks set to overhaul the company’s TV and streaming business. I, for one, think he’s up to the job. Long term, DIS stock should be a star again.
Roku (ROKU)
If there is one streaming stock that is on the comeback trail, it is Roku (NASDAQ:ROKU). Crushed like a tin can in last year’s tech sell-off, shares are up 86% so far this year.
Yet, even with this impressive run-up, ROKU is down 12% over the past year and a far cry from its post-pandemic high when the stock neared the $500 level. While it may be a long time before ROKU sees that price point again, shares could continue to run.
Roku is a bit different from today’s other streaming stocks in that it doesn’t predominately produce content. Rather, Roku makes internet-connected television sets and other devices that enable people to stream content.
Today, Roku is the biggest streaming TV platform in the U.S. and has more than 70 million active accounts worldwide. Most of its revenue comes from advertising through its Roku Channel and fees for subscription management. In 2021, Roku purchased Nielsen’s Advanced Video Advertising service to maximize the effectiveness of its advertising. And this month, it announced a deal with e-commerce giant Shopify (NYSE:SHOP) to allow users to purchase products they see on advertisements.
As streaming continues to grow, so too will Roku and its earnings. Even just a move back to the stock’s 52-week high of around $98 could yield a nearly 30% return for investors.
On the date of publication, Joel Baglole held a long position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
