The entertainment sector has been complicated in 2020. Some stocks crashed due to the COVID-19 pandemic, others surged because the same health crisis actually helped them, and many are stuck in between those extremes.
There are some great investment ideas available in each one of these three groups. Let me show you a few examples.
Video game developer and publisher Activision Blizzard (ATVI 5.62%) is crushing the market right now. The stock is up by 36% year-to-date and 72% over the last 52 weeks. Video games turned out to be an effective cure for boredom when millions of consumers got stuck at home for several months.
The company earned those gains the right way. Adjusted net revenues rose 21% year over year in the first quarter to $1.52 billion, far above management's guidance target at $1.28 billion. GAAP earnings increased by 12% to $0.65 per share, also well ahead of Activision's guidance for $0.55 per share. The report crushed Wall Street's estimates across the board.
A new installment of the Call of Duty franchise hit store shelves (and e-commerce repositories) in March. The new title hit the ground running, reaching 60 million gamers in two months. World of Warcraft more than pulled its weight along with strong gamer engagement in the Hearthstone and Overwatch franchises. Even good old Candy Crush Saga boosted its monthly active user count by 10% in the first quarter.
The momentum should carry over into the second quarter and the rest of the year. And then we're getting into the holiday season with the launch of new gaming consoles, which will push leading game studios like Activision higher again. This is simply a great time to invest in an established winner with plenty of rocket fuel left in the tank.
The media streaming technology expert has turned the home viewing experience upside down, with the help of content publishers such as Netflix (NFLX 0.41%) and Amazon. Sales surged 55% higher in the first quarter.
Roku's stock price is based on the top line's growth trajectory, setting the stage for hefty profits in the future. That's the nature of high-octane growth stocks. Push the pedal to the metal until you run out of low-hanging fruit, then shift down to collect massive bottom-line profits for the long haul based on the enormous user base you built in those early years.
The company is executing its classic high-growth business plan brilliantly, while shifting its focus over from selling low-margin set-top boxes to far more profitable software licenses and targeted advertising. Every available ounce of spare cash gets pumped back into advertising and R&D expenses for now, but it's already easy to see that Roku will be incredibly profitable just a few short years from now.
This is one of the biggest winners of the coronavirus lockdown. Yet, share prices actually fell 13% in the first half of 2020.
Mr. Market is making a huge mistake here. Roku should be skyrocketing this year, continuing the 337% gain it enjoyed in 2019. Anything short of that stratospheric flight path equals a wide-open buying window.
Media powerhouse Walt Disney (DIS 1.60%) is nearly recession-proof, but the coronavirus crisis managed to hit the House of Mouse exactly where it hurts. Theme parks and movie theaters closed down, ESPN didn't have any live sports to show, and Disney's sales are expected to drop 38% lower year over year in the ongoing third quarter.
The company is opening up its parks again, mindful of the fact that rushing it could trigger a rush of coronavirus cases and another hard lockdown. Movie theater chains are also champing at the bit, itching to get back to business as soon as possible. The road to recovery may be long and difficult, which explains why Disney shares are trading 50% below December's all-time highs.
Disney stands at a crossroads right now. The parks, film studio, and cable TV divisions have some tough decisions to make and they might never be quite the same again.
But the health crisis arrived at exactly the right time to boost Disney's video streaming operations. The freshly launched Disney+ service had more than 50 million subscribers in April, and we'll see another big jump when Disney reports earnings in early August. Hulu isn't far behind at 32 million accounts. Keep in mind that Netflix actually sports a larger market cap than Disney based on nothing but streaming services. There is no doubt in my mind that Disney could deliver strong shareholder value in the long run if the virus forced it to really lean into Hulu and Disney+.
And this isn't Disney's first rodeo. The company has survived a world war, several oil crises, and all sorts of calamities in its near-centennial history. I'm sure that the theme parks and movies will spring back to life again, supported by a stronger media streaming portfolio. It could take a while but successful investing was always a long game of unblinking patience anyway.
Disney is a great buy today.