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Investing in Streaming Service Stocks

Updated: March 23, 2021, 8:07 p.m.

New streaming TV options are launching at a frenzied pace. Ten years ago, few of us had these services, and now they’re ubiquitous in American homes. With seemingly countless subscriptions to choose from, nearly everyone can find a service that caters to them.

The COVID-19 pandemic has accelerated the trend. Stuck at home in 2020, millions of people in households around the globe signed up for a streaming service for the first time. The entertainment landscape has been drastically altered, opening up investing opportunities in 2021 and beyond.

Let's explore which of these streaming service stocks to invest in and why investors are flocking to this relatively new industry.

Top streaming stocks

There are many ways to gain portfolio exposure to streaming services. Here we focus on the companies that are either pure plays or earning outsized returns on streaming. We'll cover streaming entertainment stocks as well as advertising.

Top stocks in streaming entertainment

The best streaming entertainment stocks include industry pioneer Netflix (NASDAQ:NFLX), entertainment giant Disney (NYSE:DIS), and streaming platform leader Roku (NASDAQ:ROKU). Industry newcomers FuboTV (NYSE:FUBO) and CuriosityStream (NASDAQ:CURI) also made this list.

1. Netflix – The company that got the streaming TV party started, Netflix remains by far the largest streaming pure play, with nearly 200 million subscribers and counting, as of the end of 2020. Net new subscribers in the U.S. have slowed in recent years, but Netflix is quickly growing internationally. Also a prolific producer of TV shows and movies these days, adding content in local languages is key to its continued growth overseas.

Producing entertainment isn’t cheap, though, and Netflix has generated negative free cash flow the past few years as a result. However, as it adds new subscribers, the company expects to close in on breakeven in 2021 and begin generating positive free cash flow in 2022.

2. Disney – The much-anticipated Disney+ streaming service was launched in late 2019, just in time for the pandemic. It added tens of millions of subscribers worldwide in its first year and quickly became the second-largest subscription streaming service after Netflix. Disney also owns streaming services Hulu and ESPN+. Combined with its own extensive catalogue of entertainment and assets acquired from 21st Century Fox, Disney has become a formidable player in the space. Despite Disney being a legacy media and entertainment company, the company’s streaming services already account for more than a third of the company’s valuation.

As mentioned above, content creation isn’t cheap. Disney doesn’t expect to begin turning a profit on Disney+, Hulu, and ESPN+ for years. For now, it’s all about adding subscribers. However, Disney is still profitable overall. The company’s vertically integrated operation -- which spans theme parks, merchandising, broadcast television, and in-house video production technology -- means it has plenty of cash to plow into new content without racking up excessive losses. And though COVID-19 has sidelined the movie theater industry, the Marvel Cinematic Universe, Star Wars, and other popular franchises are real pull for subscribers as Disney updates its model for an at-home entertainment landscape.

3. Roku – Streaming TV has been a boon for smart TV and streaming device maker Roku. It has become the largest TV platform around, distributing content via the Roku Channel and acting as a hub for households to manage all of their streaming subscriptions. It isn’t profitable either, but that is because it is focused on building out its ecosystem of services.

Roku distributes its smart TV software and streaming devices at minimal cost, making money on advertising and taking a cut of subscriptions managed on its platform. It also acquired content from the now-defunct short-form video service Quibi as a possible foray into content creation and distribution. More recently, it announced that it was purchasing Nielsen’s Advanced Video Advertising segment to maximize its streaming ad platform’s effectiveness. Acting as the gateway into internet-based TV for tens of millions of households, Roku is a top way to invest in the new streaming industry.

4. fuboTV – Streaming service fuboTV, a relative newcomer to the industry, completed its IPO in the fall of 2020. This small service has gained popularity as a live TV platform without the need for a cable package, and it is a top option for those who want to watch live sporting events.

Building on its strength as a destination for sports media, fuboTV acquired Balto Sports in late 2020 to jumpstart its entry into the burgeoning sports betting industry. It subsequently announced plans to acquire sportsbook platform Vigtory and is planning a sportsbook app to complement its streaming subscription. As more states pass regulated sports wagering (after the U.S. Supreme Court voted to lift restrictions on the industry in 2018), fuboTV is set to become a top destination for sports viewing and betting in the U.S.

5. CuriosityStream – CuriosityStream, another newcomer to the industry, went public in early 2021 via a merger with a SPAC (special purpose acquisition company). This is also a small streaming service, but with a focus on documentaries and science content, which was started by Discovery’s (NASDAQ:DISCA)(NASDAQ:DISCK) founder and former CEO.

CuriosityStream is competing against some well-entrenched rivals in the nonfiction TV space, including Discovery and Disney’s National Geographic (available on Disney+). However, the young company has relatively low content creation costs as it focuses on educational material and partners with universities. Some of its peers have also been favoring reality TV shows in recent years, leaving room for this small service to carve out a niche for itself for those interested in the sciences.

Top stocks in streaming advertising

Advertising software firms play a key role in helping streaming video content creators to monetize their work and pick up new subscribers. They also help companies to advertise within streaming media.

In this new era of at-home entertainment accelerated by the pandemic, traditional content creators are faced with new challenges. Chief among them is paying for and profiting from making a TV show or movie. The global theater industry has an uncertain future and may never be as profitable as it was before COVID-19, and millions of households have been cancelling their cable TV subscriptions every year. Consequently, revenue derived from advertising via cable channels isn’t as lucrative as it once was.

With streaming services, monetizing shows and movies is different, paid for via monthly subscriptions and online ads rather than the previous global box office and linear cable TV ads. As companies seek to advertise themselves via streaming media, and content producers look for businesses that want to purchase ad time, The Trade Desk (NASDAQ:TTD) and Magnite (NASDAQ:MGNI) are well-positioned to profit.

1. The Trade Desk – This cloud-based software company is a buy-side platform, meaning that it helps companies that pay for advertising to automate the purchasing and management of marketing campaigns. Connected TV (CTV), another term for streaming television, has been one of the fastest-growing segments for The Trade Desk, and it is likely to remain so for some time as the entertainment industry rapidly migrates to internet-based video and streaming.

2. Magnite – Magnite is a sell-side ad platform, meaning its cloud software works with content creators themselves and is often a counterparty to The Trade Desk’s buy-side platform. Magnite recently announced it was acquiring CTV company SpotX, making Magnite the largest independent sell-side streaming advertising platform, with some two-thirds of its sales coming from online video and TV.

Legacy media companies offer streaming exposure, too

Telecom companies have joined the streaming arena as well, with AT&T’s (NYSE:T) WarnerMedia launching HBO Max and Comcast’s (NASDAQ:CMCSA) NBCUniversal launching Peacock. Tech giants have TV streaming subscription services, too: Amazon (NASDAQ:AMZN) Prime Video, Apple (NASDAQ:AAPL) TV+, Alphabet’s (NASDAQ:GOOGL)(NASDAQ:GOOG) YouTube TV, and Japanese tech conglomerate Sony (NYSE:SNE) owns Crackle and Crunchyroll.

While they don’t yield the same concentrated exposure to the streaming industry as the names above do, traditional media companies are another way to play in the internet-based TV movement. AT&T’s HBO Max and Comcast’s Peacock quickly picked up tens of millions of subscribers after their respective launches, but those services are a tiny fraction of those two companies’ massive telecommunications and internet operations.

Legacy companies are also offering new ways to consume live TV over the internet -- a replacement for a traditional cable package and broadcast television. Tubi is a free option that was acquired in early 2020 by Fox (NASDAQ:FOXA)(NASDAQ:FOX), the broadcast and sports network left over after Disney acquired 21st Century Fox in 2019.

Tubi is a free-to-use service and is the largest on-demand streaming service in the world supported by advertising. ViacomCBS (NASDAQ:VIAC) is another notable mention. The broadcast and cable channel recently reorganized its streaming segment, which includes Paramount+ (previously known as CBS All Access) and free ad-supported service Pluto TV. And not to be left out of the party is Dish Network (NASDAQ:DISH), owner of Sling, the flexible and low-cost cable TV replacement.

Overall, smaller media companies working to expand their streaming offerings are a better bet on streaming than the legacy industry participants. Previously mentioned Discovery has launched Discovery+, providing a unified service that includes shows from cable station favorites such a Food Network and HGTV. Additionally, Discovery+ will include live sports as part of its package in Europe.

The future is in streaming

Streaming TV industry growth has been accelerated by the pandemic, and suddenly lots of services are trying to cash in on the trend. There are plenty of streaming TV stocks to choose from as well. To maximize an investment in this fast-changing industry, focus on companies with the most zeroed-in exposure to internet-based video and TV.

However, investors should bear in mind that this nascent segment of the entertainment world is not very profitable -- at least not yet. For now, services are trying to accumulate subscribers as fast as possible as the market for at-home entertainment rapidly expands during the pandemic. Hundreds of millions of global subscribers are up for grabs as potential customers for these services.

As a result of the sector’s rapid growth, streaming stock prices are volatile, as shares of high-growth companies typically are. Nevertheless, you'd be wise to stay focused on the long-term potential as internet-based TV streaming rewrites the way entertainment is consumed over the course of the next decade and beyond.

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