Streaming entertainment has certainly been one of the most prominent growth sectors in the past decade. Adopting a consumer's perspective, this is probably obvious. But the investment implications are important to keep in mind.
There are many businesses in the space to put money behind. But investors are in a lucky position. They don't have to try and pick a single winner within the overall streaming landscape. Maybe it's best to consider buying shares of all the following companies to fully gain exposure.
Content producers
A discussion about streaming service stocks likely brings up thoughts about Netflix (NFLX +0.72%) first and foremost. This is the undisputed leader in the industry, with 247 million members and $32.7 billion of trailing-12-month revenue.
Netflix is riding strong momentum right now. Its latest quarterly numbers crushed Wall Street estimates, which helps explain why the stock has soared 38% since the financial update was given to investors. Nearly 9 million net new customers were brought in, well ahead of the 5.5 million that analysts were expecting.
As a scaled content company benefiting from a first-mover advantage, Netflix is truly in a league of its own. It has proven pricing power that hasn't prevented subscriber numbers from continuing to rise. And perhaps most important, Netflix is profitable. Its operating margin this year is expected to be 20%. And after generating $1.6 billion of free cash flow in 2022, the leadership team forecasts $6.5 billion in 2023.
Walt Disney (DIS +0.65%) is another major content-focused business that investors are likely familiar with. Its Disney+ service was late to the party, having launched in late 2019. However, it has quickly ascended to popularity, now with 150 million global subscribers. The company's streaming operations are far from profitable, though, as the segment posted an operating loss of $420 million in the latest fiscal quarter (the fourth quarter of 2023, ended Sept. 30).
To be fair, Disney is going through some major changes throughout its business as management tries to cut costs and redirect the strategic vision. But it's hard to ignore the valuable intellectual property the company possesses. Therefore, a valid argument can be made that Disney will remain one of the leading content producers in the industry. This durability adds to its investment merits.
Image source: Getty Images.
Streaming platforms
Besides pure-play content companies, streaming platforms deserve a closer look. As a three-sided ecosystem that connects viewers, content apps, and advertisers, Roku (ROKU +2.60%)has a leading share of the smart TV market in North America. Its revenue surged 20% last quarter, with hours streamed on the platform totaling a whopping 26.7 billion during the three-month period.
Roku prides itself on being agnostic, allowing all content providers on its platform. The strategic benefit is that Roku is in an advantageous position to gain as the overall streaming industry grows, with more households cutting the cord.
There's a big tech enterprise to think about as well. Alphabet (GOOGL +1.72%)(GOOG +1.52%) is a unique way to play the streaming trend. For starters, it owns YouTube, which commands more TV viewing time in the U.S. than Netflix. Besides just providing user-generated content, YouTube offers YouTube TV as an internet-based cable bundle. It is estimated to have more subscribers than Disney's Hulu + Live TV.
But with Chromecast, Alphabet also competes directly with Roku, dominating in international markets. It will be interesting to see how Chromecast fares going forward. But with virtually unlimited financial resources, Alphabet can't be underestimated. Plus, with shares trading at a reasonable forward price-to-earnings ratio of 24.1, investors should pounce at the opportunity.
Investors who decide to buy shares in all of the companies mentioned will have put their portfolios in a favorable position to benefit from the ongoing growth of streaming entertainment.
