In this article, we discuss the 10 best entertainment stocks to invest in.
The entertainment industry, an industry that spans from theaters and live events to gaming, streaming, and e-sports, was one of the first to be hit with the Covid lockdowns and other social distancing measures. As film productions were put on hold and live events canceled, the traditional entertainment industry has come to a near halt. On the other hand, video gaming, streaming, and other digital entertainment platforms flourished since the first stay-at-home orders were put in place. Thus, the pandemic thrust forward the digital transformation that was taking place in the entertainment industry. According to the 2020 THEME Report by Motion Pictures Association, “the combined theatrical and home/mobile entertainment market globally was $80.8 billion, an 18 percent decrease compared to 2019’s record-high of $98.3 billion.” To assess the digital entertainment market, the report notes that a “72% percent decrease in the global theatrical market due to the pandemic was partially offset by a 31 percent increase in the digital home/mobile entertainment market, compared to 2019.”
This dichotomous impact of the pandemic on the entertainment industry has never been clearer as it has been in the case of The Walt Disney Company (NYSE: DIS). As the social distancing measures were enacted all over the world, Disney parks were closed, resulting in massive losses to the company whereas its multiple streaming platforms such as Disney+ brought in a record number of subscribers during this period. In the first quarter of 2021, Disney+ gained 8.7 million global customers after more than 20 million subscribers in the fourth quarter of 2020.
Regarding video gaming, the annual E3 conference was held from June 12 to June 15, 2021. While some big names like Activision Blizzard, Inc. (NASDAQ: ATVI) and Electronic Arts Inc. (NASDAQ: EA) did not have presentations during the event, Benchmark analyst Mike Hickey told investors that he viewed “Battlefield 2042” as a top three game from the E3, keeping a Buy rating on Electronic Arts Inc. (NASDAQ: EA).
However, as vaccination rates increase and lockdown measures are eased, the consumer spending on more traditional entertainment offerings such as theatres or Disney Parks is likely to rebound fast – a phenomenon called revenge spending. As evidence of this, The Walt Disney Company (NYSE: DIS) has announced that “Black Widow,” the latest Marvel movie, debuted to $158M globally in the box office with $80M in the domestic box office and $78M in the international box office. Its over-the-top streaming Disney+ Premier Access brought in $60M globally.
While the traditional entertainment industry may enjoy some rebound in the next few months, the digital transformation of the entertainment industry is in full swing. Some of the companies that are likely to benefit from this accelerated digital transformation of the entertainment industry include The Walt Disney Company (NYSE: DIS), Netflix, Inc. (NASDAQ: NFLX), and Sea Limited (NYSE: SE).
Like the entertainment industry, the hedge fund industry is also feeling the effects of the pandemic. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best entertainment stocks to invest in. These companies were ranked keeping in mind the basic business fundamentals, hedge fund sentiment, and analyst ratings for each.
Best Entertainment Stocks to Invest In
10. SciPlay Corporation (NASDAQ: SCPL)
Number of Hedge Fund Holders: 23
SciPlay Corporation (NASDAQ: SCPL) is an electronic gaming & multimedia company based in Las Vegas, Nevada. It is ranked tenth on our list of 10 best entertainment stocks to invest in. The stock has returned over 3.94% to investors over the course of the past year. On May 10, SciPlay Corporation (NASDAQ: SCPL) posted earnings for the first quarter of 2021, reporting earnings per share of $0.22, missing estimates by $0.03. The revenue over the period was around $151 million, up 27.73% year-over-year.
At the end of the first quarter of 2021, 23 hedge funds in the database of Insider Monkey held stakes worth $95 million in SciPlay Corporation (NASDAQ: SCPL).
On June 29, Truist argued that SciPlay Corporation (NASDAQ: SCPL) parent company Scientific Games Corporation (NASDAQ: SGMS) could look to consolidate SciPlay Corporation (NASDAQ: SCPL) due to modest dis-synergies for both companies and the possibility of more organic investment at SciPlay Corporation (NASDAQ: SCPL) after a consolidation. Truist has a Buy rating on SciPlay Corporation (NASDAQ: SCPL) with a $20 price target.
Just like The Walt Disney Company (NYSE: DIS), Netflix, Inc. (NASDAQ: NFLX), and Sea Limited (NYSE: SE), SciPlay Corporation (NASDAQ: SCPL) is one of the best entertainment stocks to invest in.
9. Take-Two Interactive Software, Inc. (NASDAQ: TTWO)
Number of Hedge Fund Holders: 41
Take-Two Interactive Software, Inc. (NASDAQ: TTWO) is an electronic gaming & multimedia company based in New York, NY. It is ranked ninth on our list of 10 best entertainment stocks to invest in. The stock has returned over 13% to investors over the course of the past year. On May 18, Take-Two Interactive Software, Inc. (NASDAQ: TTWO) posted earnings for the first quarter of 2021, reporting earnings per share of $1.43, beating estimates by $0.75. The revenue over the period was around $839 million, up 10.37% year-over-year.
At the end of the first quarter of 2021, 41 hedge funds in the database of Insider Monkey held stakes worth $822 million in Take-Two Interactive Software, Inc. (NASDAQ: TTWO).
On June 24, MoffettNathanson gave a Buy rating with a $214 price target to Take-Two Interactive Software, Inc. (NASDAQ: TTWO). The firm stated that Take-Two Interactive Software, Inc. (NASDAQ: TTWO) “arguably has the best owned-IP collection of franchises in the industry.”
Just like The Walt Disney Company (NYSE: DIS), Netflix, Inc. (NASDAQ: NFLX), and Sea Limited (NYSE: SE), Take-Two Interactive Software, Inc. (NASDAQ: TTWO) is one of the best entertainment stocks to invest in.
8. Roku, Inc. (NASDAQ: ROKU)
Number of Hedge Fund Holders: 63
Roku, Inc. (NASDAQ: ROKU) is an entertainment company based in San Jose, California. It is ranked eighth on our list of 10 best entertainment stocks to invest in. The stock has returned over 188% to investors over the course of the past year. On May 6, Roku, Inc. (NASDAQ: ROKU) posted earnings for the first quarter of 2021, reporting earnings per share of $0.54, beating estimates by $0.67. The revenue over the period was around $574 million, up 79% year-over-year.
At the end of the first quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $3.78 billion in Roku, Inc. (NASDAQ: ROKU), up from 60 the preceding quarter worth $3.24 billion.
On July 8, Cannonball Research kept its Buy rating on Roku, Inc. (NASDAQ: ROKU) with a $650 price target. The firm noted that the bear case where Roku will “ramp up content spending to irrational levels is not going to materialize”.
Artisan Partners Limited Partnership, in its Q4 2020 investor letter, mentioned Roku, Inc. (NASDAQ: ROKU). Here is what the fund said:
“Among our top individual contributors in Q4 was Roku. Roku is one of the pioneers of streaming TV, connecting users to à la carte content via an easy-to-use streaming ecosystem. The pandemic has accelerated the trend away from traditional linear TV and toward an array of streaming services like those offered on Roku’s platform. This shifting landscape has also rearranged where advertising dollars are being spent, and as a leading provider of the operating system used in domestic smart TVs, with proprietary data on users’ viewing habits, Roku can also participate in advertising economics. New initiatives such as The Roku Channel—its own ad-supported streaming service—and international expansion via partnerships with smart-TV manufacturers also offer further profit cycle catalysts in the years ahead.”
7. Spotify Technology S.A. (NYSE: SPOT)
Number of Hedge Fund Holders: 46
Spotify Technology S.A. (NYSE: SPOT) is a Swedish internet content & information company offering audio streaming and media services. It is ranked seventh on our list of 10 best entertainment stocks to invest in. On April 28, Spotify Technology S.A. (NYSE: SPOT) posted earnings for the first quarter of 2021, reporting earnings per share of -$0.30, beating estimates by $0.19. The revenue over the period was around $2.52 billion, up 23.59% year-over-year.
At the end of the first quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $2.99 billion in Spotify Technology S.A. (NYSE: SPOT).
On June 9, Cathie Wood’s ARK Investment bought 157K shares of Spotify Technology S.A. (NYSE: SPOT).
Just like The Walt Disney Company (NYSE: DIS), Netflix, Inc. (NASDAQ: NFLX), and Sea Limited (NYSE: SE), Spotify Technology S.A. (NYSE: SPOT) is one of the best entertainment stocks to invest in.
In the Q2 2021 investor letter of Guardian Fund, the fund mentioned Spotify Technology S.A. (NYSE: SPOT). Here is what the fund said:
“What does the future of audio look like?
To us it seems strange that today the market of music, one of the most universally loved things, is as small as the global market for bananas.
Spotify, with 356 million monthly listeners, is on a mission to provide more monetization options for creators. This is gradually going to increase the size of the market. For example, podcasters now have easy tools to build their business.
One option for podcasters is to use Anchor (accounting for 80% of new shows on Spotify) and determine what is subscriber-only content. For the next two years this service will be free to the creator and from 2023 onwards Spotify will charge a fee of 5% of revenues. This is low and comparable to the 5% Epic Games charges for the Unreal Engine. People are free to use Anchor
and it offers tools for example to add video to the podcasts.” (Click here for the full text)
6. Electronic Arts Inc. (NASDAQ: EA)
Number of Hedge Fund Holders: 44
Electronic Arts Inc. (NASDAQ: EA) an electronic gaming & multimedia company based in Redwood City, California. It is ranked sixth on our list of 10 best entertainment stocks to invest in. The stock has returned 1.58% to investors over the course of the past year. On May 11, Electronic Arts Inc. (NASDAQ: EA) posted earnings for the first quarter of 2021, reporting earnings per share of $1.23, beating estimates by $0.18. The revenue over the period was around $1.35 billion, down 2.96% year-over-year.
At the end of the first quarter of 2021, 44 hedge funds in the database of Insider Monkey held stakes worth $1.43 billion in Electronic Arts Inc. (NASDAQ: EA).
On June 21, Benchmark kept its Buy rating on Electronic Arts Inc. (NASDAQ: EA) with a $181 price target.
Just like The Walt Disney Company (NYSE: DIS), Netflix, Inc. (NASDAQ: NFLX), and Sea Limited (NYSE: SE), Electronic Arts Inc. (NASDAQ: EA) is one of the best entertainment stocks to invest in.
Artisan Partners, in its Q1 2021 investor letter, mentioned Electronic Arts Inc. (NASDAQ: EA). Here is what the fund said:
“Video game publisher Electronic Arts (EA) has recently experienced muted performance relative to peers. The company is expanding its moat as COVID-19 pulled forward gamer engagement in 2020 and early 2021. While we expect current growth rates will slow, the long-term value of the company’s user community has increased. EA’s net cash balance sheet and industry leadership fit well with our philosophy and process, and while the recently acquired Codemasters and GLUU Mobile will draw down cash, the balance sheet remains strong and the deals further EA’s mobile growth strategy. We believe our stake in EA represents how we can think opportunistically to build an eclectic, idiosyncratic portfolio to deliver value over the long term.”
5. Zynga Inc. (NASDAQ: ZNGA)
Number of Hedge Fund Holders: 47
Zynga Inc. (NASDAQ: ZNGA) is an electronic gaming & multimedia company based in San Francisco, California. It is ranked fifth on our list of 10 best entertainment stocks to invest in. The company’s shares have returned 0.86% to investors over the course of the past year. On May 5, Zynga Inc. (NASDAQ: ZNGA) posted earnings for the first quarter of 2021, reporting earnings per share of $0.13, beating estimates by $0.04. The revenue over the period was around $680.3 million, up 68.47% year-over-year.
At the end of the first quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $1.14 billion in Zynga Inc. (NASDAQ: ZNGA).
On May 6, BofA upgraded Zynga Inc. (NASDAQ: ZNGA) to Buy from Neutral rating with a $13.5 price target, citing “strong” Q1 result with organic growth.
Artisan Partners Limited Partnership, in their Q4 2020 investor letter, mentioned Zynga Inc. (NASDAQ: ZNGA). Here is what the fund said:
“We also added to our position in Zynga. Our multiyear investment campaign in Zynga has been based on a new management team’s ability to drive steady growth in the company’s base portfolio of games, expand margins, reinvigorate the new game development pipeline and use its strong balance sheet to acquire complementary games and studios. Shares have been pressured in recent quarters, presumably because of investor concerns about the company’s moderating growth rate and Apple’s pending new privacy policy which will make it more difficult for Zynga to both efficiently acquire new players and sell advertising in its games. We believe the company has multiple growth levers it can pull in the periods ahead, including the rollout of new games, acquisitions, further penetration into international markets and entry into new gaming categories, to name a few. Furthermore, our research suggests the Apple privacy policy change is manageable for larger mobile game developers such as Zynga. Given our strong conviction in the profit cycle, we used recent weakness to add to our position.”
4. Sea Limited (NYSE: SE)
Number of Hedge Fund Holders: 98
Sea Limited (NYSE: SE) is a Singaporean technology conglomerate mainly specializing in areas of electronic gaming and e-commerce. It is ranked fourth on our list of 10 best entertainment stocks to invest in. The stock has returned over 124% to investors over the course of the past year. On May 18, Sea Limited (NYSE: SE) posted earnings for the first quarter of 2021, reporting earnings per share of -$0.62, missing estimates by $0.05. The revenue over the period was around $1.76 billion, up 146.69% year-over-year.
At the end of the first quarter of 2021, 98 hedge funds in the database of Insider Monkey held stakes worth $10.43 billion in Sea Limited (NYSE: SE).
On July 1, Morgan Stanley kept its Overweight rating on Sea Limited (NYSE: SE) with a $300 price target. On June 25, New Street initiated coverage of Sea Limited (NYSE: SE) with a Buy rating and a $325 price target.
3. Netflix, Inc. (NASDAQ: NFLX)
Number of Hedge Fund Holders: 110
Netflix, Inc. (NASDAQ: NFLX) is an entertainment company based in Los Gatos, California. It is ranked third on our list of 10 best entertainment stocks to invest in. The stock has returned 5.56% to investors over the course of the past year. On April 20, Netflix, Inc. (NASDAQ: NFLX) posted earnings for the first quarter of 2021, reporting earnings per share of $3.75, beating estimates by $0.76. The revenue over the period was around $7.16 billion, up 24.2% year-over-year.
At the end of the first quarter of 2021, 110 hedge funds in the database of Insider Monkey held stakes worth $14.16 billion in Netflix, Inc. (NASDAQ: NFLX), down from 116 the preceding quarter worth $15.63 billion. On July 7, Truist kept its Buy rating on Netflix, Inc. (NASDAQ: NFLX) with a $600 price target, arguing that Netflix, Inc. (NASDAQ: NFLX) has options to expand its services into podcasts and live sports as well as to consider an ad-driven revenue stream.
Polen Focus Growth Fund, in its Q1 2021 investor letter, mentioned Netflix, Inc. (NASDAQ: NFLX). Here is what the fund said:
“We purchased Netflix in March, initiating a 3% position in the Portfolio. We believe Netflix is a highly competitively advantaged company. It has recently met all our investment guardrails, and we anticipate it will remain sustainably above our guardrails over the next five years and beyond. We know Netflix for its ubiquitous streaming service and deep library of owned content. The company has made investments in this content (currently running at nearly $20 billion/year), generally keeping subscribers highly engaged and loyal to their service. The company has number one market share in 99% of markets globally, but it is our view that video streaming on-demand is still an underpenetrated space with many years of attractive growth likely ahead. The service is also relatively affordable at roughly $11/month on average globally.
We believe Netflix’s growth in content spend is beginning to moderate, which could allow margin expansion to continue for many years when paired with ongoing subscriber growth and price increases. While there is competition from the likes of Apple (Apple TV+), Amazon (Prime Video), Disney (Disney+ and Hulu), and others, we believe there can be a handful of winners in this industry. Already, we see many people subscribe to multiple streaming video services, with Netflix being their “anchor” service. That said, the barriers to entry are high, and we believe they are getting higher given the substantial amount of capital and size of the subscriber base required to maintain a competitive service for both viewers and content producers. Over the next five years, we expect Netflix’s earnings growth to be approximately 30% annualized and free cash flow to grow at an even higher rate.”
2. Activision Blizzard, Inc. (NASDAQ: ATVI)
Number of Hedge Fund Holders: 76
Activision Blizzard (NASDAQ: ATVI) is an electronic gaming & multimedia company based in Santa Monica, California. It is ranked second on our list of 10 best entertainment stocks to invest in. The company’s shares have returned 14.56% to investors over the course of the past year. On May 4, Activision Blizzard (NASDAQ: ATVI) posted earnings for the first quarter of 2021, reporting earnings per share of $0.84, beating estimates by $0.15. The revenue over the period was around $2.28 billion, up 27.24% year-over-year.
At the end of the first quarter of 2021, 76 hedge funds in the database of Insider Monkey held stakes worth $3.58 billion in Activision Blizzard (NASDAQ: ATVI).
On June 24, MoffettNathanson gave a Buy rating with a $124 price target to Activision Blizzard, Inc. (NASDAQ: ATVI). The firm noted the stability of the cash flows and net cash position on the balance sheet of Activision Blizzard, Inc. (NASDAQ: ATVI).
1. The Walt Disney Company (NYSE: DIS)
Number of Hedge Fund Holders: 134
The Walt Disney Company (NYSE: DIS), or simply Disney, is a mass media and entertainment company. It is ranked first on our list of 10 best entertainment stocks to invest in. The company’s shares have returned 51.6% to investors over the course of the past year. On May 13, Disney (NYSE: DIS) posted earnings for the first quarter of 2021, reporting earnings per share of $0.79, beating estimates by $0.53. The revenue over the period was around $15.61 billion, down 13.38% year-over-year.
At the end of the first quarter of 2021, 134 hedge funds in the database of Insider Monkey held stakes worth $12.55 billion in the Walt Disney Company (NYSE: DIS), down from 144 the preceding quarter worth $16.4 billion. On July 6, Cathie Wood’s ARK Investment bought 108.7 K shares of The Walt Disney Company (NYSE: DIS).
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Disclosure: None. 10 Best Entertainment Stocks to Invest In is originally published on Insider Monkey.
