In this article, we discuss the 10 streaming stocks to buy now. If you want to skip our detailed analysis of these stocks, go directly to Forget Netflix: 5 Streaming Stocks to Buy Now.
The rise of over-the-top (OTT) media services has transformed the entertainment industry in recent years. The television-based model has undergone a rapid decline and ceded space to internet-based video-on-demand subscriptions. According to a report by PwC, a London-based professional services firm, the global OTT industry was worth close to $23 billion in 2020. This figure is expected to climb up to $32 billion by 2025, representing a compound annual growth rate of 6.9% for the industry over a period of five years.
Netflix: Bumpy Road Ahead
However, there are murmurings in the finance world that user growth for OTT giants may be slowing down. Netflix, Inc. (NASDAQ: NFLX), the most popular streaming platform with a user base of over 200 million at the end of July, has recently stepped up efforts to diversify revenue sources, announcing a new gaming platform in this regard. At the end of the second quarter, Netflix, Inc. (NASDAQ: NFLX) reported that users had increased by 1.5 million, roughly in line with expectations. However, the guidance for the third quarter in this regard stood at 3.5 million, well below analyst estimates of 5.5 million.
One reason why Netflix, Inc. (NASDAQ: NFLX) has seen user growth slow in recent months is the increased competition from other streaming services. These include OTT services by industry giants like Amazon.com, Inc. (NASDAQ: AMZN), The Walt Disney Company (NYSE: DIS), and Apple Inc. (NASDAQ: AAPL), among others discussed in detail below. Within the OTT industry, podcasts are a rising star, bringing in close to $1 billion in revenue for streaming companies in 2020. It remains to be seen how firms in the streaming business deal with post-COVID challenges.
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Our Methodology
The main idea of this article is that Netflix might be expensive and have long-term risks for average investors who have a limited budget and want to pile into streaming stocks to profit from the lucrative streaming and entertainment industry.
We picked some of the notable streaming stocks that are attractively valued, have positive ratings and long-term growth potential, according to analysts.
These were ranked using the data from 866 funds tracked by Insider Monkey. The companies with the most hedge fund holders were given preference in the listing process. The basic business fundamentals and the analyst ratings of each company were also considered to pick stocks that have the best chance of offering investors handsome returns in the near future.
Forget Netflix: Streaming Stocks to Buy Now
10. Cadence Design Systems, Inc. (NASDAQ: CDNS)
Number of Hedge Fund Holders: 30
Cadence Design Systems, Inc. (NASDAQ: CDNS) is a California-based firm that markets software, hardware, and related services. It is placed tenth on our list of 10 streaming stocks to buy now. In addition to selling integrated circuit design blocks, the firm also sells cloud services. The Cadence Cloud Portfolio and the chips sold by the firm are both used to power streaming platforms and the devices on which they function. In earnings for the second quarter, posted on July 26, the firm beat market expectations on earnings per share and revenue.
On July 27, investment advisory Baird kept an Outperform rating on Cadence Design Systems, Inc. (NASDAQ: CDNS) stock and raised the price target to $168 from $160, noting that strong quarterly results and improved guidance numbers from the firm.
At the end of the first quarter of 2021, 30 hedge funds in the database of Insider Monkey held stakes worth $1.49 billion in Cadence Design Systems, Inc. (NASDAQ: CDNS), down from 32 in the preceding quarter worth $1.40 billion.
9. Spotify Technology S.A. (NYSE: SPOT)
Number of Hedge Fund Holders: 46
Spotify Technology S.A. (NYSE: SPOT) is a company that owns and operates a platform for audio streaming services. It is headquartered in Luxembourg and is ranked ninth on our list of 10 streaming stocks to buy now. In earnings results for the second quarter, posted on July 22, the firm reported earnings per share of -€0.19, beating market estimates by €0.22. The revenue over the period was €2.33 billion, up 23% year-on-year and beating predictions by €40 million. The company has more than $350 million users on the platform.
On July 29, investment advisory Guggenheim upgraded Spotify Technology S.A. (NYSE: SPOT) stock to Buy from Neutral and raised the price target to $265 from $245, noting that the stock was attractively priced compared to long-term potential.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in Spotify Technology S.A. (NYSE: SPOT) with 3.1 shares worth more than $852 million.
Unlike Netflix, Inc. (NASDAQ: NFLX), Amazon.com, Inc. (NASDAQ: AMZN), The Walt Disney Company (NYSE: DIS), and Apple Inc. (NASDAQ: AAPL) have just launched their streaming services and are still witnessing accelerating subscriber growth, according to analysts.
In its Q4 2020 investor letter, Guardian Fund, an asset management firm, highlighted a few stocks and Spotify Technology S.A. (NYSE: SPOT) was one of them. Here is what the fund said:
“At the current share price, Spotify basically only represents a fraction of the value they will be able to unlock in the growing market of audio entertainment. The key for Spotify is to change a variable cost base into a fixed cost base just like Netflix has. As the market share of the big labels, measured by the daily hours of engagement of the big labels, is declining, Spotify will be able to adjust its business model and create enormous operational leverage meaning that profitability will grow faster than expenses.
The music catalogue is not the business model. The value lies in the machine learning that drives discovery and engagement, the original content from people like Michelle Obama, Kim Kardashian, and Joe Rogan, the data analytics and distribution for artists, the direct and social relations artists can have with fans through music and videos. We believe that Spotify will be worth at least five times more in 2030.”
8. Discovery, Inc. (NASDAQ: DISCA)
Number of Hedge Fund Holders: 48
Discovery, Inc. (NASDAQ: DISCA) is placed eighth on our list of 10 streaming stocks to buy now. The firm is based in New York and markets media-related services. The company owns and runs some of the most famous television stations around the world. It also has stakes in the streaming business through the Discovery+ platform. The platform has more than 18 million users already, less than a year after launch. The firm has a market cap of $19 billion and posted more than $10 billion in revenue in 2020.
On August 4, investment advisory Deutsche Bank maintained a Buy rating Discovery, Inc. (NASDAQ: DISCA) stock but lowered the price target to $40 from $55, underlining a more conservative outlook for the firm after a deal with Warner Media.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Discovery, Inc. (NASDAQ: DISCA) with 3.8 million shares worth more than $167 million.
Unlike Netflix, Inc. (NASDAQ: NFLX), Amazon.com, Inc. (NASDAQ: AMZN), The Walt Disney Company (NYSE: DIS), and Apple Inc. (NASDAQ: AAPL) are relatively newer players in the streaming market and have promising growth potential, according to analysts.
In its Q1 2021 investor letter, Mayar Capital, an asset management firm, highlighted a few stocks and Discovery, Inc. (NASDAQ: DISCA) was one of them. Here is what the fund said:
“We also sold most of our holdings in Discovery as the stock price continued to increase to new highs. However, in late March the stock declined considerably when brokers liquidated holdings by Archegos Capital (see above in General Commentary) to satisfy margin calls. That brought the stock price down to levels that we found attractive, and we bought back a significant amount of the shares that we had sold earlier that month.”
7. Oracle Corporation (NYSE: ORCL)
Number of Hedge Fund Holders: 52
Oracle Corporation (NYSE: ORCL) is ranked seventh on our list of 10 streaming stocks to buy now. The company operates from Texas and markets software, cloud, and information technology services. The cloud platform made by the firm is used by streaming companies like Phenix, Net Insight, and Mynet. Phenix is involved in the streaming of award shows like Oscars, Net Insight broadcasts live events like the Olympics and the Super Bowl, while Mynet focuses on streaming online gaming events. The firm has a market cap of over $250 billion.
On July 22, investment advisory KeyBanc reiterated an Overweight rating on Oracle Corporation (NYSE: ORCL) stock and raised the price target to $100 from $90, noting the strengthening information technology budget outlooks as a growth catalyst for the firm.
At the end of the first quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $2.8 billion in Oracle Corporation (NYSE: ORCL), the same as in the preceding quarter worth $2.4 billion.
Unlike Netflix, Inc. (NASDAQ: NFLX), the streaming services of Amazon.com, Inc. (NASDAQ: AMZN), The Walt Disney Company (NYSE: DIS), and Apple Inc. (NASDAQ: AAPL) are still growing, according to analysts.
Here is what Ariel Investments has to say about Oracle Corporation (NYSE: ORCL) in its Q1 2021 investor letter:
“A temporary factor might be a downturn in the high-yield bond market driving up LBO financing costs for the decline in 2021 GAAP revenue for Oracle Corporation (ORCL) due to a change in accounting methods. In all these examples, stock prices were driven well-below our calculations of intrinsic value. We invested in each company with good outcomes. Later, we will offer instances when this strategy is not successful.”
6. Roku, Inc. (NASDAQ: ROKU)
Number of Hedge Fund Holders: 63
Roku, Inc. (NASDAQ: ROKU) is a California-based firm that owns and runs a TV streaming platform. It is placed sixth on our list of 10 streaming stocks to buy now. On August 4, the company posted earnings for the second quarter, reporting earnings per share of $0.52, beating market estimates by $0.45. The revenue over the period was $645 million, up 81% year-on-year and beating market predictions by $26 million. Active customer accounts were slightly below expectations at the end of June and stood at 55.1 million against estimates 55.8 million.
On August 5, investment advisory DA Davidson maintained a Buy rating on Roku, Inc. (NASDAQ: ROKU) stock and raised the price target to $600 from $560, noting that the advisory was not overly concerned about the recent video consumption numbers which were consistent with the reopening of the economy.
At the end of the first quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $3.7 billion in Roku, Inc. (NASDAQ: ROKU), up from 60 in the preceding quarter worth $3.2 billion.
Unlike Netflix, Inc. (NASDAQ: NFLX), the streaming services of Amazon.com, Inc. (NASDAQ: AMZN), The Walt Disney Company (NYSE: DIS), and Apple Inc. (NASDAQ: AAPL) have potential to grow, according to analysts.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Roku, Inc. (NASDAQ: ROKU) was one of them. Here is what the fund said:
“For two years running, Roku has now been either the largest or second largest driver of performance in portfolios. When we purchased Roku, obviously we never expected such a phenomenal outcome, so quickly—these things can only be chalked up to luck. However, we do think luck is the residue of design and Roku had all the hallmarks ex ante as the kind of position that could do something wildly spectacular. One of the first signs in seeing Roku’s potential was the sharp contrast between our modeled expectations for the top line of the business and where the consensus expectations were. This was the Shopify setup all over again. By this time, we had added an additional tool to our analytical framework, and this helped further enforce our conviction that not only was it we who were right about where things should go, but also that the very existence of this gap could be a potent source of fuel behind the stock as the world came around to our expectation. Specifically, we had become increasingly comfortable building lifetime value analyses of companies, and notably, when we bought Roku, we were quite confident that with only modest annual increases in average revenue per user (ARPU), and a 5-year average customer lifespan, we were buying the company for its existing customer base and nothing more. In other words, the growth at Roku was entirely free at the prevailing prices we bought into.”
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Disclosure. None. Forget Netflix: 10 Streaming Stocks to Buy Now is originally published on Insider Monkey.
