Betting on broad secular tailwinds can be a worthwhile investment strategy to help you achieve strong returns. And these trends aren't difficult to identify, as they probably impact you daily.
One such area is the streaming sector, pioneered by the likes of Netflix, which ushered in the era of households "cutting the cord" and ditching their cable subscriptions. Nowadays, there are numerous businesses all fighting for viewers' limited attention.
Luckily for investors, it's not necessary to pick a single winner in the streaming industry. That's because it's easy to adopt a basket approach and own all the major players in the space. Let's take a closer look.
Betting on content companies
As I mentioned, Netflix can be credited with creating the streaming industry that we know today. It first launched its streaming service in the U.S. in 2007 and is now in over 190 countries across the globe. As of March 31, Netflix had 233 million subscribers. Because of its first-mover advantage and now massive scale, the company is expected to generate $3.5 billion in free cash flow in 2023, up from $1.6 billion last year. This type of favorable financial position is unique in the streaming industry.
Walt Disney is another stock to look at. While Hulu has been around for over a decade, the company's flagship Disney+ service didn't launch until November 2019, roughly 12 years after Netflix started streaming. But Disney's growth has been staggering, as it counts 231 million subscribers (as of April 1) across its three services (Disney+, Hulu, and ESPN+). With its incredible intellectual property, it's hard to envision a scenario where Walt Disney isn't a force to be reckoned with in streaming over the long term.
Besides the two giants, Netflix and Walt Disney, investors can also look at smaller competitors. With its newly launched Max service (which replaces HBO Max), Warner Bros Discovery has amassed 97.6 million subscribers. There's also Comcast, which owns Peacock.
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Betting on streaming platforms
Then there are the streaming platforms that create an environment that connects viewers with their favorite content all in one place. And advertisers can target these viewers in a connected-TV setting.
With leading market share in the smart-TV market in the U.S., Canada, and Mexico, Roku is a top streaming platform with 72 million active accounts that streamed 25 billion hours of content during the first three months of this year.
Besides Roku, investors can pick up some top FAANG stocks to gain more thorough exposure to the streaming industry. For example, consider Alphabet. Not only does it have Chromecast which competes directly with Roku, but it also owns YouTube, the most popular video entertainment service that commands more daily TV viewing time in the U.S. than Netflix.
Amazon also has its fighter in the ring. The e-commerce and cloud computing giant sells Fire TV Sticks that can plug into TVs and allow them to view streaming content. Moreover, Amazon Prime, the popular subscription service with 153 million members in the U.S., has a video-on-demand offering. Amazon purchased MGM in early 2022, which will bolster its content capabilities.
We can't forget about Apple. Like Alphabet and Amazon, the iPhone maker has a connected-TV device called Apple TV. It also has a streaming service, Apple TV+. The company has made a big push toward acquiring the rights to stream live sports, with deals in place with Major League Soccer and Major League Baseball.
Multiple ways to gain exposure
As you can see, there are many different ways to gain exposure to the growth of streaming entertainment. Investors who don't have the time or the necessary skill set to try to analyze which of these businesses will be long-term winners can instead consider buying all of these stocks for their portfolios. The hope is that the rising tide of streaming will lift all boats.
