The world is on a home entertainment binder. The COVID driven stay-at-home initiative has people burning through streaming content like there is no tomorrow. Our constant need for entertainment amid this pandemic has provided a strong tailwind for video streaming services across the board. The subscription-based platforms are locking in multitudes of new customers who are more willing than ever to expand their portfolio of streaming platforms.
Streaming is red hot right now, and I am going to outline some investment opportunities as well as a stock to stay away from. This digital sector is set to thrive in society's "new normal." Now it's time to determine who the winners will be.
Netflix (NFLX - Free Report)
The pioneer of streaming, Netflix, has been riding a high since the beginning of the year, with investors pouring money into NFLX to seemingly no end. The shares are up over 40% so far this year and are currently sitting at all-time highs.
Netflix had been experiencing a flat-line in domestic user growth, and concerns are budding about decelerating international growth as a wave of highly anticipated streaming services hit the markets. Its March quarter earnings revealed a short-term resurgence in subscription growth, but will the streaming king be able to maintain its spot on the throne?
Media giants with many decades of content have entered the space, and they are pulling their content from Netflix's library. Netflix is on the verge of losing some of its most-watched shows like The Office, Friends, Blue Planet, Mad Men, and numerous blockbuster movies. Netflix has been pouring tens of billions into original content in recent years, but this may not be enough to match its new competitors' massive libraries.
I would stay away from NFLX at its current price level and start pulling profits off the table if you are a shareholder. The stock's valuation has been stretched to an unreasonable level considering the mounting competition and its shrinking content library.
Disney (DIS - Free Report)
Disney+ has taken the streaming world by storm, having already amassed 54.5 million subscribers since the platform was released 6 months ago. The new direct-to-consumer service is gaining more traction than analysts or even Disney anticipated. In half a year, Disney has been able to secure 1/3rd of the subscribers that Netflix took over a decade to accumulate, and the service is just beginning to build momentum abroad.
Disney is a world-renown brand with its international theme parks and global movie releases. Disney's iconic characters and content have a worldwide appeal. Disney has almost a century of quality and nostalgic content at its disposal, and its recent acquisition of 21st Century Fox has substantially broadened that library.
This acquisition gave Disney control of Hulu's legacy streaming platform, which the company is now taking international. The combined subscribers of both Disney's streaming services amounts to roughly 87 million, which is more than half of Netflix's customer base.
When international consumers on a budget are deciding between Netflix and Disney+, choosing Disney+ is no brainer with its recognizable content and monthly price that is less than half of Netflix. Disney posses a sizable threat to Netflix's global growth.
DIS shares have been crushed by the COVID market-crash and have yet to see a sizable recovery. Its substantial international theme park exposure has weighed heavily on investor sentiment with shares down roughly 20% year-to-date, lagging the S&P 500 by more than 10% points.
DIS has recently been gaining traction as its parks slowly reopen. Shanghai Disneyland opened May 11th at 20% capacity, and Orlando's Walt Disney World resort is expected to partially reopen on May 20th. DIS shares are finally starting to regain momentum and will continue to do so as more parks schedule their reopening.
Disney+ is the future of the enterprise, and the traction that it has gained since its release makes me optimistic about DIS shares at their discounted level.
Media giants Comcast (CMCSA - Free Report) and AT&T (T - Free Report) are gearing up to release their highly anticipated streaming services. These media juggernauts are going to shake up the streaming space as they jump on the cord-cutting bandwagon.
Comcast's NBCUniversal direct-to-consumer platform, Peacock, is already available to Comcast customers and will be nationally released on July 15th. Peacock will enable users to not only stream their favorite NBCUniversal shows and movies, but it will provide them with live news and sports. Peacock's release was strategically set up to capitalize on NBC's exclusive 2020 Tokyo Olympic coverage, but unfortunately, this highly anticipated event has been delayed until 2021.
Peacock's tier pricing is quite reasonable, offering an ad-supported package for $4.99 per month and an ad-free service for $9.99.
AT&T's WarnerMedia segment is releasing an extended HBO package, which will substantially extend the service's current content, adding more blockbuster movies & classics as well as culture-defining TV. The platform will be offered at the same price as HBO Now, but its library will be much richer. HBO Max will be released on May 27th.
Comcast and AT&T are adapting to the evolving demand as more and more commercial-sick consumers cut the cord. These streaming platforms are the lifeboats that these media conglomerates needed to maintain a robust long-term outlook.
The streaming space is soaring with the world craving content. The space's new entrants will be warmly welcomed with the heavy demand for in-home entertainment amid this pandemic.
I would pull profits from NFLX shares and consider reallocating to DIS. I would wait for more color on the initial performance of Peacock and HBO Max before investing in CMCSA and T.
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