Both Netflix (NFLX +3.23%) and Charter Communications (CHTR +1.54%) have posted stellar gains in 2017. The stocks have gained roughly 35% year to date. Charter investors have enjoyed a 54% gain in 52 weeks, while Netflix shares rose 75% over the same period.
But that's all in the rearview mirror now. Which stock is poised for stronger gains if you're buying today? Let's have a look.
By the numbers
|
Metric |
Netflix |
Charter |
|---|---|---|
|
Trailing revenue |
$10.2 billion |
$40.8 billion |
|
Trailing EBITDA profits |
$707 million |
$14.6 billion |
|
Total number of customers |
104 million |
26.8 million |
|
Year-over-year customer growth |
25% |
4.5% |
Data source: Netflix. and Charter.
Netflix is a global enterprise, offering video entertainment services to paying subscribers around the world at an average monthly fee of $8.99. The service is growing quickly, but most of Netflix's revenues and operating profits are reinvested into new content licenses and the production of Netflix Originals.
Charter has fewer customer relationships, all concentrated in the U.S. market, but the higher prices of cable TV and internet services result in average revenues of $110 per customer and a much beefier financial model.
If you're looking for high growth, Netflix would be the ticket. For mature cash flows and impressive economies of scale, Charter is the obvious pick.
Image source: Getty Images.
Budding buyouts?
Netflix is commonly painted as a buyout target. The company would provide an instant digital-video strategy on a global scale for any company with enough resources to cover a price tag of more than $75 billion. These rumors have been floated since Netflix was a much smaller business, specializing in DVD mailers rather than digital streaming services. So far, no serious bidders have emerged and the company looks destined to remain a stand-alone business for years to come.
Charter, on the other hand, is already the product of a recent big-ticket buyout. The addition of Time Warner Cable and Brighthouse Networks in the spring of 2016 more than tripled Charter's subscriber counts overnight, and the company may be headed for another game-changing deal soon enough.
In the last month alone, the rumor mill has churned out two potential Charter buyers. Japanese telecom giant SoftBank reportedly wants to merge Charter with Sprint (S +0.00%), giving ambitious billionaire Masayoshi Son a more complete business platform in North America. Dutch telecom Altice is considering a Charter deal for similar reasons. Altice founder Patrick Drahi dipped his toes in American waters with its $9 billion buyout of Cablevision. Adding Charter would be a much larger and more transformational deal.
If you like to bet on quick-hit buyout premiums, Charter looks like the far more realistic choice here.
All things considered
I prefer the organic growth and clear business strategy that Netflix offers, and that stock is indeed the single largest holding in my personal investment portfolio. The company is bleeding cash because its content-production schedule requires large cash payments up front, but that equation will flip into strong cash generation over time. I'm willing to wait.
This matchup really has two winners, though. Charter's combination of solid financial results and a more-than-plausible buyout exit is exciting. Value investors get strong cash flows today, with the potential for a quick price surge if and when Altice or SoftBank pull the trigger on a final offer.
In my view, you can't go wrong with either one of these good-looking entertainment stocks.
