A recent article appeared in Adweek highlighting the success both Walt Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) are having with their ad-supported streaming products. That got me thinking about the consumer stocks that have supported the two companies and revenue growth from increased advertising.
“Broadly speaking, we are going to see some more pronounced lift given the younger life stage of Netflix and Disney+ in terms of having ad-supported activity,” Nicole McCurnin, director of advertising insights at Guideline, told Adweek. “But it is attracting more. We do see that play out.”
In Q1 2024, Disney+ was first in gross media spend growth, up 210%, with Netflix in second, up 135%.
My theory is that the consumer stocks advertising on both of these ad-supported networks are the names investors ought to consider for their portfolios. After all, if you’re a big spender on ad-tier streaming platforms that have been around for 18 months, you know their businesses are likely cooking.
Here are my three choices.
Top Consumer Stocks: Marriott International (MAR)
When the ad-supported version of Disney+ launched in December 2022, Marriott International (NASDAQ:MAR) was one of the approximately 100 brands advertising on the streaming platform.
At the time, Disney’s streaming business was losing $1.5 billion a quarter. In the quarter ended March 31, its streaming business, which is part of Disney’s Entertainment segment, reported a $47 million, up significantly from a $587 million a year earlier.
It’s interesting to see a big advertiser on Disney+ that competes with The House That Walt Built for traveler dollars. There’s plenty to go around.
On June 3, Marriott announced that three U.S. luxury properties would convert to brands within its Marriott Bonvoy portfolio this summer: The Resort at Pelican Hill, Turtle Bay Resort, and a luxury midtown hotel near Central Park in New York City.
“Strengthening and growing our luxury pipeline is a top priority for the company, and I’m proud that Marriott remains the clear industry leader in the segment,” said Dana Jacobsohn, Chief Development Officer, U.S. Luxury Brands & Global Mixed-Use.
The company’s luxury properties — 510 in 70 countries — account for 10% of Marriott’s open rooms and future pipeline. As of March 31, Marriott had 8,861 hotels and 1.64 million rooms worldwide.
Analysts are lukewarm on MAR stock with just six rating it a Buy with a $248 target price, 3% higher than a year earlier. In 2024, it plans to return $4.3 billion to shareholders for dividends and share repurchases.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) was one of the other top brands to sign on for ads on Disney’s ad-supported tier. For years, Starbucks never advertised, but now it’s relatively commonplace. It’s definitely the right advertiser for Disney +.
Starbucks’s business is in the middle of a downturn. Its second quarter saw U.S. same-store sales decline by 3% on a 7% reduction in transactions, offset by a 4% increase in the average ticket. As a result, its North American business had $6.38 billion, flat over last year, with a 6% decrease in operating income, to $1.15 billion.
Overall, it opened 364 net new stores in the second quarter, finishing with 38,951, split 52%/48% between company-0perated and licensed.
While the quarter didn’t meet expectations, it’s working on a plan that will be implemented at all its North American stores by the end of July. It focused on improving processes to speed things up while making life easier for baristas.
Anyone who’s spent any time at Starbucks knows that they have a specific way of doing things, sometimes to the detriment of store cohesiveness. Time will tell if the tweaks do the trick.
What I do know is that Starbucks handles challenges better than most. That always makes its stock attractive.
LVMH (LVMH)
LVMH (OTCMKTS:LVMUY) brands such as Louis Vuitton and Tiffany & Co. were advertising on the Netflix ad-tier when it launched in November 2022. While Tiffany makes sense for the demographic you would expect from an ad-tiered version, Louis Vuitton’s presence suggests it wants to reach as many American consumers as possible.
Bernard Arnault is one of the brightest people in business. His story of building the company from a bankrupt group of brands to the world’s largest and best luxury conglomerate is an interesting one. That’s why he’s the third-wealthiest person on the planet.
In the latest quarter, it generated revenue of 20.69 billion euros ($22.23 billion), 3% higher on an organic basis over last year. In 2023, its operating margin was 26.5%, a very healthy rate. It intends to protect these margins. It generated 25% of its 86.2 billion euros ($92.63 billion) in revenue.
When LVMH acquired Tiffany in early 2021, it went to work moving the brand higher up the luxury food chain. As a result, it’s doubled the brand’s profits. It’s not afraid to reinvest those profits in its businesses, spending $500 million on renovations for Tiffany’s New York City flagship.
There will always be ups and downs in the demand for luxury goods. However, there’s no denying that the number of people who can afford a $2,500 handbag has shot up over the past decade.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Will Ashworth 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.
