Great News Investors! It's Not Too Late to Invest in Streaming

Investors are always searching high and low for the "next big thing". However, sometimes they search for something novel, believing they're too late to profit from ongoing, multi-year trends. One example is streaming. Consumers have been "cutting the cord" for years now, canceling cable TV and satellite TV options in favor of connected TV. Therefore, all the good investment returns are surely in the past now, right?

In this video from Motley Fool Live, recorded on July 13, three Fool contributors -- Toby Bordelon, Brian Withers, and Jon Quast -- discuss reasons why it's not too late to invest in the shift to streaming TV services, presenting The Walt Disney Company (DIS 1.54%), The Trade Desk (TTD 4.15%), and Roku (ROKU 5.41%) as three good stocks to buy to profit from the trend.

Brian Withers: In addition to slashing box office sales, the coronavirus has also accelerated the use of streaming apps. But this seems to have started to slow down in recent months. Netflix disappointed investors or the market when it came out with its earnings and Roku even seems to be slowing down a bit. Is it too late to take advantage of the streaming megatrend? If not, what's one stock you'd consider buying or adding to right now? Toby?

Toby Bordelon: Yeah, I don't think it's too late. I think this is where things are going absolutely. I honestly, you consider adding to Disney. They've had lots of growth which you can't discount than what? This week I think we've learned that ESPN+ is increasing its price by a dollar. The whole Disney+ bundle is not changing, but let say, if you were only given ESPN+ piece, it's gone up a dollar, which is interesting. I remember my first ascribed to the bundle last year. ESPN is like a throw-in, like, sure, I'll take the bundle and use it, but I would never get that on its own.

I think now they're starting to provide a little bit of value there, and I think you're going to see sports drive some of this. Hopefully, we'll get to a point soon. I love to add up to this year and maybe next year, where if you're a sports fan, you've got to get all of that, including live sports from all of the major leagues, even your local stuff without having to subscribe to any cable at all, you can get it all streaming. I think that would be a game-changer for the ESPN portion and some other stuff out there, like, maybe, even the Peacock for NBC Universal [owned by Comcast], that has a lot of sports stuff. But I definitely provide Disney is the one. Taking a look at it. It's still worth buying, I think.

Withers: Yeah, it's really smart. I mean, think about the pricing here. When they released Disney+ just before the coronavirus and they could have charged for ESPN+ there, but I think they were trying to get you hooked. They wanted you to get in and they probably waited until now to raise prices for ESPN just because you were seeing the tiddlywinks championship from 2019 because there wasn't anything there. But now, you're getting the NBA's back. I'm actually watching the tour to France with real fans standing by the side of the road. Yeah, sports is back absolutely. It's time for ESPN+. We talked a little bit yesterday about pricing power. I think ESPN has got tons of pricing power. Disney can certainly use that one and go further with it as the streaming stuff comes out. I would totally little buy a Virginia Tech, football package from your alma mater to watch whatever sports that you wanted to see.

Back to the question, is streaming, is it too late? Absolutely not. There's a couple of stats that I'll point to. I love this one: 63% of Americans over the age of 68 pay for cable TV. [laughs] If you're over 68, you're most likely have cable TV. Who doesn't have cable TV is Gen Z. This is a generational trend, absolutely. The current cable-TV market share, just under 50%. If you add in satellite TV, it's even bigger. Internet TV is still just getting started globally.

I like The Trade Desk, as a way to play this one, it's a massive programmatic advertising market. The accompany says they're chasing a global advertising market of $725 billion with a B. linear television today has about a quarter of that or a third of that, I'm sorry. With $230 billion. There Q1 growth number is 37%, and Q2 off of a coronavirus, the depressed coronavirus Q2 in 2020, they're projecting 88% growth.

Trade Desk is very much a volume business, they pay for adds placed or they get paid for ads that are placed. To see management projecting an 88% for the upcoming quarters is that they have really good insight into what's going on.

This is an interesting fact, the company has been GAAP profitable -- generally [accepted] accounting principles -- not this non-GAAP fake pull the stuff out that we don't want to see. GAAP profitable since 2013. I really like The Trade Desk here.

Jon Quast: That's great. I love The Trade Desk too. I like that Toby mentioned Disney and you mentioned The Trade Desk because you're hitting the two sides of the streaming angle. You have the paid services like your ESPN+ or your Disney+, but then you have the ad-supported channels as well, like Hulu, is ad-supported. What's the other one? Pluto? There's two different models.

What's interesting to me as I am looking out here -- and to answer the question, no, it is not too late to invest in this trend. We're seeing the ad dollars shift as the viewership shifts over time. Advertisers are going to spend where people are and where they can get return on their investment. As people are shifting from cable and other pay-TV services or linear TV services, as they are shifting to the Internet TV, connected TV, those advertising dollars are shifting as well. As they shift, advertisers are realizing that they can be more targeted with The Trade Desk, more precise and they get a better return. That also drives more ad dollars going to the streaming services.

An article that came out yesterday with Adweek on Roku. Roku is over 50 million users add-supported. They sold their upfront advertising slots a full quarter earlier this year than they ever have. There's so much demand for those ad dollars right now on Roku. Not only that, it said that 42% of the ads spend is coming from people advertising on Roku for the very first time. This is a shift that is happening now, right now. Upfront spending doubled year-over-year. There was a lot of ad spending in 2020, and so 2021, the upfront spend is doubled year-over-year for Roku.

For me, this is a virtuous cycle, as well. As these ad-supported channels have more revenue coming in, they can create better content that attracts more viewers that attracts more ad dollars. The inverse is also true for your traditional legacy companies as they're losing these dollars. How do they make up the difference to get it back? To me, it's an irreversible trend that's going to keep playing now.

Bordelon: I like that you brought in Roku, Jon. One thing I think about when I look at the streaming services is you've got somebody. We got Disney+, and we've got Hulu, we got Netflix. Peacock, I guess people spread to that. Discovery+ [owned by Discovery] now, which is now a bigger thing with the merger, with Paramount CBS [ViacomCBS].

But Roku I think could be maybe one of those companies that almost becomes the cable company for the streaming era. If they can get the rights to do it, you can integrate these things together maybe into a single guide -- service that up to people. They'd obviously be some legal issues with that. You have to work that out with each service provider. But the potential is there. They have the advantage of not being owned by a major tech company, so they haven't irritated anyone so much so that no one will say, "I'm not working with you anymore," and you got those fights that you get between Amazon and Google [owned by Alphabet]. Definitely, I think an interesting one to keep your eye on.