Should Investors Buy These Top Streaming Stocks Amid The High Valuation?
The coronavirus pandemic has been benefiting video streaming stocks. The demand for home entertainment has been soaring despite the reopening of the economy. The purest-play top video streaming stocks are jumping sharply on encouraging analyst commentary. In fact, the red hot rally among video streaming stocks has been challenged recently. Consumers are starting to go outside again. And children are slowly returning to school. Both factors are leading to a drop in streaming engagement. And likewise for streaming stocks. But if you see the coronavirus pandemic as a catalyst for meaningful long term investment in video streaming stocks, read on.
The year 2020 is a year where many new video streaming providers launched new services. All of this new competition may have some investors wondering if the streaming space is getting a little bit too crowded. And most importantly, whether investors can benefit from such intense competition at all. To help investors sift through the video streaming noise, let’s focus on these purest-play video streaming stocks instead of Amazon’s (AMZN Stock Report) Prime Video or AT&T’s (T Stock Report) HBO Max.
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Top Video Streaming Stocks To Buy [Or Sell] Right Now: Netflix
Netflix (NFLX Stock Report) is the undisputed leader in the video streaming space. Shares of NFLX surged 11.61% to a near all-time high on growth optimism on Wednesday. It should come as no surprise that Netflix capitalized hard during the pandemic. The streaming giant added an unprecedented 25.86 million subscribers in the first half of 2020, nearly as many as it added in all of 2019.
Of course, the subscriber’s growth witnessed wouldn’t be sustainable in the long run. But a recent analyst survey indicates that most Netflix subscribers plan to stick around, making investors all hopeful again.
The survey was conducted by Piper Sandler analyst Yung Kim. Based on the results of the questionnaire, Netflix will keep most of its viewers after the pandemic. But more impressively, many customers appear to be willing to pay more for the service. It seems to suggest that people found the service to be of good value. Chances are, they would stick around if Netflix were to raise prices. Netflix’s pricing power is a testament to its growing moat.
Top Video Streaming Stocks To Buy [Or Sell] Right Now: Roku
Second, on the list, shares of Roku (ROKU Stock Report) jumped as much as 11.17% after analysts at Citi initiated coverage with a “Buy” rating and a price target of $180 per share. That implies a 10% potential upside from its existing valuation. Citi cited the $330 value of an active Roku account, which is higher than the $130 economic value, as the disparity reflects the potential for the equity’s worth to grow through the end of 2023.
However, to be able to assess the true value of an active Roku account is not an easy feat. That’s because these are free accounts instead of paid subscriptions. The service creates value by personalized advertising in addition to sales of value-added products and services.
“In the US, we think there are just two firms: Netflix and Roku. Their business models couldn’t be more different. But, the fate of the equity we suspect is similar. Both turn on sub growth and rising value per sub,” analyst Jason Bazinet wrote. He also sees Roku’s user base expanding to 70 million accounts by the end of 2021.
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Top Video Streaming Stocks To Buy [Or Sell] Right Now: Disney
Call me a cheater for including Disney (DIS Stock Report) in the list of pure-play video streaming stocks. Yes, I get that the majority of its revenue came from its theme park and resorts. But the streaming service is increasingly worthy of attention. Considering Disney+ had more than 60.5 million subscribers as of early August, we shouldn’t discredit the stellar subscriber growth in less than a year’s time.
If you have been following the video streaming space closely, you would’ve known that Verizon (VZ Stock Report) is giving Disney+ a boost. Customers of the communication company can now stream all things on Disney+. Under the collaboration between the two companies, customers of Verizon’s new unlimited plans are able to access all three Disney streaming services, namely Disney+, Hulu, and ESPN+, at no extra charge. Disney revealed that about 20% of early Disney+ subscribers signed up via the Verizon deal.
The addition of Hulu and ESPN+ to the bundle is certainly icing on the cake. With the sticky behavior of video subscribers, there could be further upside to Disney. In fact, I wouldn’t be surprised if streaming becomes Disney’s largest business segment in a few years’ time.