Over the past month, Disney’s (DIS) stock has been on a tear. It is up 29.7% since October 28th and up almost 80% since its closing low in March. The stock has benefited from the recent positive vaccine news and got an additional boost on Wednesday as Citigroup (C) analyst Jason Bazinet reiterated his Buy rating on the company. But is the stock worth buying now?
I think investors have gotten ahead of themselves with optimism on the vaccine news. The vaccines aren’t expected to be available to the majority of the general public until mid-next-year, and even then, it could take months or even years for us to get back to normal. While DIS’s streaming service, Disney+, is very popular, mainly driven by The Mandalorian (my favorite show), the loss of its higher-margin movie and theme park revenue is hurting the company. The company has so far suspended its dividend, cut jobs, and launched an $11 billion debt offering.
Right now, I’d rather focus on companies that drive revenue mainly from streaming, as is the case for both Roku, Inc. (ROKU) and Netflix, Inc. (NFLX), or companies where streaming adds an additional growth driver to a business already firing on all cylinders, such as Amazon.com, Inc. (AMZN). That’s why I am highlighting these three companies today. As it gets colder and COVID infections rise, more people are expected to stay at home and watch shows and movies on streaming platforms.
Roku, Inc. (ROKU)
Before people could access streaming through cable, smart TVs, and their phones, they would attach a Roku device to their TVs to get access. The company still generates plenty of revenue from streaming players through online retailers such as AMZN, and brick and mortar stores, such as Best Buy (BBY) and Walmart (WMT). But its future lies in advertising revenue and content publishers’ fees.
The company had a strong third quarter where revenue soared 73.1% year over year as active accounts jumped 43% to 46 million, partially driven by strong sales of its players in the United States and the international markets. Platform revenues, which make up over 70% of revenues, increased 78% year over year, driven by the popular new live TV channel guide, which includes over 115 channels.
ROKU’s acquisition of ad platform, Dataxu will position the company to compete for ad dollars as the industry moves from the TV market to digital platforms. As people will likely be forced to stay at home again, ROKU should see a bounce as more people will stream. The stock also got bump recently on news that the company was in discussions with AT&T (T) to bring HBO Max to the Roku platform, which would be a big coup for the company and something I have been waiting for.
The stock is rated a “Strong Buy” in our POWR Ratings system, with a grade of “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. It had a grade of “B” for Industry Rank, the fourth component that makes up the POWR ratings. ROKU is also the #3 ranked stock in the Technology – Hardware industry.
Netflix, Inc. (NFLX)
When it comes to streaming, NFLX is the pioneer and is still dominating the industry. The company has benefited from cord-cutting, increased demand for streaming, and a wide-open international market, waiting for NFLX to conquer it. Even before the pandemic, the company was headed for good things, but the Covid-19 lockdown sped up the process and made NFLX a prime beneficiary of increased stay at home streaming.
NFLX, which started as a small DVD-rental provider, has spent enormous amounts of money on building out its original content portfolio. The diversity of its content sets it apart from its rivals, which includes the production of local foreign-language content. That content and the launch of low-priced mobile plans have enabled it to expand its subscriber base into the Asia Pacific.
NFLX should see further upside on global subscriber growth as it continues to expand into other international regions. The company’s launch of a higher number of originals should also increase its user base next year. In addition, NFLX’s pricing power will be able to propel the stock even higher. It was reported in late October that the company is raising the price of its standard plan in the U.S. to $14 a month and increasing its premium tier by $2.00 a month. Every time it raises its subscription plan, revenue increases.
NFLX is rated a “Buy” in our POWR Ratings system. It holds a grade of “A” for Industry Rank and a “B” for Trade Grade, and Buy & Hold Grade. It is also ranked #16 out of 59 stocks in the Internet Industry.
Amazon.com, Inc. (AMZN)
AMZN has been one of the biggest beneficiaries of the pandemic-induced lockdowns. The stock soared from a closing low of $1,676.61 on March 12th to a closing high of $3,443.63 on October 13th. That marked a gain of 105.4%. Since then, the stock has pulled back some, down 7% from its high, as it sold off in September. I think this provides a buying opportunity as the company could see significant gains from this holiday season.
The fourth quarter has typically been AMZN’s best quarter of the year, driven by holiday shopping. I believe this year could be the best yet. With the pandemic forcing most people to do their shopping online, AMZN should be one of the prime beneficiaries. The company recently reported a strong third quarter, with earnings jumping 192.4% year over year. Sales were up 37.4% from the same quarter last year.
Much of AMZN’s consumer revenue is generated through its loyal Prime memberships. The company’s current focus is building video content for Prime subscribers, as the growth potential in streaming is enormous. The company had a streaming winner with The Boys, another favorite of mine. If streaming and shopping weren’t enough, the company also generates substantial revenue from its cloud-based businesses and just launched Amazon Pharmacy, which is expected to shake up the drug business.
AMZN is rated a “Buy” in our POWR Ratings service. It holds a grade of “A” in Industry Rank and a “B” in Trade Grade and Buy & Hold Grade. The stock is also ranked #15 in the Internet industry.
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DIS shares fell $0.18 (-0.12%) in after-hours trading Thursday. Year-to-date, DIS has gained 5.95%, versus a 15.56% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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