Media stocks are in a tricky spot. On the one hand, legacy giants still control much of the total market when measured by pure size, scope and scale. On the other hand, smaller and nimbler media companies are rapidly stealing customers from legacy media’s grip as digital subscription rates skyrocket. But media stock margins tend to be paper-thin, and you can’t pay shareholders in subscription rates, no matter how fast they’re rising.
That’s why the best media stocks strike a balance between the two — nimble enough to adapt to changing market trends while large enough to hold their respective segment captive while improving profit margin. These three stocks balance the two extremes, making them stand out in a littered media landscape.
Nintendo (NTDOY)
Nintendo (OTCMKTS:NTDOY) tops the list of cutting-edge media stocks for a reason — of all the media stocks delivering next-gen entertainment to customers, few are as reactive as Nintendo. Fewer still have as many bullish tailwinds bubbling below the surface as Nintendo, and though not all have come to fruition, the sheer number of Nintendo rumors that have popped up over the past year point to big things ahead for the Japanese media stock.
Last year saw rumors of a Google (NASDAQ:GOOG, NASDAQ:GOOGL) and Nintendo collaboration intended to bring next-gen virtual reality headsets to consumers before Apple’s (NASDAQ:AAPL) hit mainstream consciousness. Soon after, leaked Microsoft (NASDAQ:MSFT) emails from its gaming division showed the company’s aggressive interest in acquiring Nintendo, touting it as a “career moment” and an easy sell to investors based on Nintendo’s tendency to preserve cash over growth. While neither has panned out (yet), Nintendo is still pushing ahead of other media stocks in the race for consumer eyeballs (and wallets).
Most notably, Nintendo is finally dipping into its wellspring of intellectual property to monetize franchise opportunities. After The Super Mario Bros Movie’s success, which brought in $1.36 billion globally, Nintendo is leaning into the nostalgia factor by bringing The Legend of Zelda to the big screen.
Frankly, amid the many media stocks on today’s market, Nintendo has it all: smart financial management (if a bit conservative), popular hardware with plenty of upside as tech matures, and passive media with a substantial under-tapped intellectual property portfolio.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) might be the media stock comeback story of the century, considering the former FAANG staple reversed course to trade more than 200% higher than its 2022 low when stiff competition and lagging subscription rates pushed it out of investors’ favor. But that’s rapidly changing as Netflix retakes its spot among media stocks, as we saw with its January Q4 earnings report.
Over a tough period for consumer cyclicals, driven by 2023’s household budget tightening, Netflix proved its worth as a fixture in our media diet. Over the year, Netflix added 12% to its overall revenue while operating margins popped to 21% from 18%. In the year’s final quarter, Netflix added more than 13 million new subscribers to the platform. The latter point reinforces Netflix’s stickiness more than any other.
Clamping down on password sharing seemingly worked exactly as Netflix hoped — rather than losing the free riders taking advantage of friends and family’s passwords, those former password pirates seemingly bit the bullet and paid for their own subscriptions. If the trend holds, Co-CEO Greg Peters’ claim that the clampdown “will support increased conversion of our addressable market in many years to come” may prove prescient.
Take-Two Interactive (TTWO)
Take-Two Interactive (NASDAQ:TTWO) is biding its time until the hotly-anticipated Grand Theft Auto VI release in 2025, but that doesn’t mean that the media stock isn’t worth buying today. Remember that, in 2013, GTA V cleared more than $1.5 billion in a few days, setting records for game sales. With more than a decade bridging the installments, it’s safe to assume that GTA VI will enjoy the same record-setting sales as its predecessor.
Nurturing anticipation seems to be the name of the game for this media stock, as TTWO’s CEO told shareholders in a quarterly call, “We’re seeking perfection, and when we feel we’ve optimized creatively, that’s the time to release.” Finding companies as committed to long-term strategy as TTWO, perhaps at the expense of short-term gain, is rare among gaming media franchises. For proof, look to Bethesda Softworks’ ill-fated Fallout 76 release, widely panned as rushed and far from playable, let alone perfection. Focus on quality rather than quantity is TTWO’s hallmark, and it’s a move that ultimately rewards shareholders in sustainable, long-term capital appreciation.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
