Netflix, Inc. (NFLX) has been one of the biggest beneficiaries of the global coronavirus pandemic, as is evident from its 71.5% returns over the past year. With entire populations following social distancing protocols and remote lifestyles for the better part of 2020 and now into 2021, NFLX became the second largest streaming service in the world.
However, NFLX has been facing intense competition from several new competitors that are now entering the streaming space. NFLX’s subscriber growth has been decelerating. In the last reported quarter, the company added just 2.20 million subscribers, down substantially from the 10.10 million subscribers in the prior quarter. With an exhausted content pipeline, people are increasingly seeking alternative streaming services, with fresh playlists and often lower subscription costs.
The Walt Disney Company (DIS), Comcast Corporation (CMCSA) and Roku, Inc. (ROKU) have shown business resiliency amid the pandemic and are gaining momentum in the streaming space. With newer and diverse content lineups, we think these companies are positioned nicely to surpass NFLX in the coming months.
The Walt Disney Company (DIS)
DIS, a leading international family entertainment and media enterprise, operates in four business segments: Media Networks, Theme Parks, Studio Entertainment, and Direct-To-Consumer and International. While the pandemic shut down DIS’ parks, cruise lines, and movie launches, the entertainment giant made huge progress in its direct-to-consumer business as it drove millions to its video streaming services consisting of Disney+Hotstar, Disney+, ESPN+ and Hulu.
In October, DIS announced a strategic reorganization of its media and entertainment businesses in light of the rapid success of Disney+. Under the new structure, DIS will focus on developing and producing original content for the company’s streaming services and legacy platforms, while centralizing commercialization.
In December, the company announced plans to launch 100+ new titles per year for Disney+. DIS also shared details regarding its international general entertainment content brand, Star, which will be launched in Europe and several other international markets in February. The product line-up is expected to significantly boost the company’s direct-to-consumer services revenue.
DIS’ total revenues increased 24.9% sequentially to $14.71 billion in the fiscal fourth quarter ended October 3, 2020. Revenues from the media network segment increased 10.8% year-over-year to $7.21 billion, while revenues from direct-to-consumer & international segment increased 40.8% year-over-year to $4.85 billion. The total number of paid subscribers for Hulu increased 28.4% year-over-year to 36.60 million users, while free cash flow rose 224.4% year-over-year to $3.59 billion over this period.
Analysts expect DIS’ revenues to grow 6.9% to $69.87 billion for the current year ending December 31, 2021. Its EPS for the next five years is expected to rise at a CAGR of 41.6%. DIS has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 44.4% over the past six months.
How does DIS stack up for the POWR Ratings?
A for Trade Grade
B for Peer Grade
A for Buy & Hold Grade
B for Industry Rank
A for Overall POWR Rating.
The stock is also ranked #1 of 16 stocks in the Entertainment – Sports & Theme Parks industry.
Comcast Corporation (CMCSA)
CMCSA, a global media and technology company, is one of the largest cable providers in the U.S. The company has three primary businesses: Comcast Cable, NBCUniversal and Sky.
Last month, FreeWheel (a Comcast company) announced a landmark partnership with NBCUniversal in which the company will lead ad decisioning across all NBCU properties using a new and innovative technology. This is expected to fully automate NBCU’s linear TV ad scheduling process across all its networks.
Also in December, CMCSA announced that it had reached an agreement with DIS giving it the right to distribute the Disney+ and ESPN+ services on its Xfinity X1 and Flex platforms, thereby creating a seamless way for consumers to easily access content on a unified platform.
On December 17, FreeWheel (a Comcast company) announced its plan to acquire Beeswax, a software as a service (SaaS) advertising company. The acquisition will expand FreeWheel’s current programmatic marketplace capabilities across all forms of television and video advertising platforms, thereby enabling clients to participate more seamlessly in the growing programmatic TV ecosystem with simplicity.
CMCSA’s revenues have increased 7.7% sequentially to $25.53 billion in the third quarter that ended September 30, 2020. The company’s total customer relationships increased 4.9% year-over-year to 32.69 million customers in the third quarter, while its free cash flow rose 10.5% from the year-ago value to $2.29 billion. The OTT streaming service, Peacock, launched by the company in April, had nearly 22 million sign-ups across the United States at the end of September. Analysts expect CMCSA’s revenues to grow 1.8% year-over-year to $27.08 billion in the current quarter ending March 31, 2021. The company’s EPS for the next five years is expected to rise at a CAGR of 6%. CMCSA has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 15.4% over the past six months.
It is no surprise that CMCSA is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. In the 13- stock Entertainment – TV & Internet Providers industry, it is ranked #1.
Roku, Inc. (ROKU)
ROKU is a television streaming platform that allows users to stream content, enables content publishers to build and monetize audiences, and provides advertisers with capabilities to engage consumers. The company operates primarily through two segments –Platform and Player.
In mid-December , ROKU and WarnerMedia announced an agreement to launch HBO Max on the ROKU platform. This will allow ROKU to deliver an exceptional user experience at an incredible value to its growing customer base.
Earlier this month, ROKU acquired exclusive distribution global rights for Quibi’s content, such that ROKU will stream more than 75 premium shows and documentaries for free on an ad-supported basis to all Roku users. This will enable ROKU to consistently expand the breadth and quality of its free, ad-supported content for its users.
ROKU’s net revenue has increased 73% year-over-year to $451.70 million in the third quarter ended September 30, 2020. The company added 2.9 million active accounts over the same period to hit 46 million subscribers. Its EPS improved 145.5% from the year-ago value to $0.10.
Analysts expect ROKU’s revenues to grow 48.7% year-over-year to $611.65 million in the fourth quarter ended December 31, 2020. The consensus EPS estimate for the fourth quarter represents a 46.2% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 176.2% over the past six months.
ROKU’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade and Industry Rank. It is ranked #5 of 52 stocks in the Technology – Hardware industry.
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DIS shares were unchanged in after-hours trading Friday. Year-to-date, DIS has declined -4.64%, versus a 2.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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