In this article, we discuss the 10 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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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 July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 115 percentage points (see the details here). 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.
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. 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., 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. 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. with 3.1 shares worth more than $852 million.
Unlike Netflix, Inc., Amazon.com, Inc., The Walt Disney Company, and Apple Inc. 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. 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. with 3.8 million shares worth more than $167 million.
Unlike Netflix, Inc., Amazon.com, Inc., The Walt Disney Company, and Apple Inc. 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 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, the same as in the preceding quarter worth $2.4 billion.
Unlike Netflix, Inc., the streaming services of Amazon.com, Inc., The Walt Disney Company, and Apple Inc. 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. 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., up from 60 in the preceding quarter worth $3.2 billion.
Unlike Netflix, Inc., the streaming services of Amazon.com, Inc., The Walt Disney Company, and Apple Inc. 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.”
5. Comcast Corporation (NASDAQ: CMCSA)
Number of Hedge Fund Holders: 88
Comcast Corporation (NASDAQ: CMCSA) is a Pennsylvania-based media and technology company. It is ranked fifth on our list of 10 streaming stocks to buy now. The firm has stakes in several businesses, including web-based streaming through the Xfinity brand. On July 29, the firm posted earnings for the second quarter, reporting earnings per share of $0.84, beating market estimates by $0.17. The revenue over the period was $28 billion, up 20% year-on-year and beating market predictions by $1.3 billion.
On July 30, investment advisory Morgan Stanley maintained an Overweight rating on Comcast Corporation stock and raised the price target to $72 from $70, noting the earnings beat of the firm in the second quarter and potential for faster growth in the future.
Out of the hedge funds being tracked by Insider Monkey, New York-based firm Eagle Capital Management is a leading shareholder in Comcast Corporation with 38 million shares worth more than $2 billion.
In its Q1 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Comcast Corporation (NASDAQ: CMCSA) was one of them. Here is what the fund said:
“Comcast is the Largest cable provider in the U.S. and is the dominant internet access provider in the markets it serves. Though Comcast will likely see further declines in cable subscriptions due to ongoing cord-cutting, it should be able to off set that lost revenue by growing internet access customers and instituting higher pricing. The pandemic has increased the importance of a fast internet connection, with more content streaming to homes at increasingly higher quality. Comcast made significant upgrades early on, allowing it to quickly deploy new technology and increase speeds to meet the evolving needs of its customers.”
4. ViacomCBS Inc. (NASDAQ: VIAC)
Number of Hedge Fund Holders: 89
ViacomCBS Inc. (NASDAQ: VIAC) is placed fourth on our list of 10 streaming stocks to buy now. The company operates as a media and entertainment firm. It is based in New York. The firm owns and runs a number of television networks and has recently launched the Peacock streaming service for internet users. The platform has crossed a user base of 50 million, out of which 10 million are premium subscribers. The firm recently beat market expectations on revenue for the second quarter.
On May 20, investment advisory Bank of America upgraded ViacomCBS Inc. stock to Buy from Underperform and raised the price target to $53 from $38, noting that there might be media consolidation in the coming months as streaming players seek increased scale.
At the end of the first quarter of 2021, 89 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in ViacomCBS Inc., up from 44 the preceding quarter worth $919 million.
3. Apple Inc. (NASDAQ: AAPL)
Number of Hedge Fund Holders: 127
Apple Inc. is ranked third on our list of 10 streaming stocks to buy now. The firm operates from California and operates as a technology firm with stakes in several businesses, including streaming. The Apple TV+ brand of the technology giant was launched in 2019 and has already crossed 40 million users by the end of 2020. The company has a market cap of over $2.4 trillion and posted $274 billion in revenue last year. It recently beat market estimates on earnings for the second quarter.
On July 28, investment advisory Loop Capital reiterated a Buy rating on Apple Inc. stock and raised the price target to $165 from $150, highlighting that the firm had delivered a second consecutive quarter of material upside across the board.
At the end of the first quarter of 2021, 127 hedge funds in the database of Insider Monkey held stakes worth $130 billion in Apple Inc., down from 146 in the preceding quarter worth $142 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ: AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
2. The Walt Disney Company (NYSE: DIS)
Number of Hedge Fund Holders: 134
The Walt Disney Company is a California-based mass media and entertainment firm. It is placed second on our list of 10 streaming stocks to buy now. The company operates in the streaming industry through the Disney+ platform that was launched in 2019 and has already crossed 103 million users, firmly cementing its place in the industry as one of the fastest-growing streaming services. The company has a market cap of $321 billion and posted $65 billion in revenue last year.
On June 10, investment advisory Wolfe Research maintained an Outperform rating on The Walt Disney Company stock with a price target of $226, underlining that the risk/reward ratio of the firm was favorable for investors.
At the end of the first quarter of 2021, 134 hedge funds in the database of Insider Monkey held stakes worth $12.5 billion in The Walt Disney Company, down from 144 in the preceding quarter worth $16.4 billion.
In its Q4 2020 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and The Walt Disney Company (NYSE: DIS) was one of them. Here is what the fund said:
“One of the original constituents of the Nifty Fifty holds a place in our portfolio today. When we bought Disney three years ago, we wrote that “we view Disney theme parks in the US, Europe, and China as resistant to online substitution.” We did not reckon on a pandemic, which closed all of them, and sent all of usto our couches. Disney, however, wasready for us, brilliantly illustrating the importance of management foresight and change management. Or, as Louis Pasteur said, “chance favors the prepared mind.
A century after its founding in 1923, Disney is in the middle of a bold shift from its legacy media networks & entertainment model—with cable TV, theme parks, and theater films dominating its earnings—to a direct-to-consumer streaming media model. The keys to Disney’s transition: matchless storytelling, coupled with financial strength. The company reliably creates content that people all over the world are eager to consume. It also hastened spending on original content to attract subscribers to its new streaming platform. These factors have allowed Disney to weather the pandemic having expanded its direct engagement with customers. Such connections yield a rich harvest of insights used to customize offerings on a mass scale, reinforcing that engagement in a virtuous circle and thereby raising the lifetime value of each customer. Subscribers to Disney+ reached 86.8 million one year after launch, compared to the 60 – 90 million management projected to reach in 2024. To be sure, Netflix, Apple, and Amazon remain formidable competitors in new-era streaming entertainment (mind what we said about everyone standing up at once), but there’s fight left in this old dog.”
1. Amazon.com, Inc. (NASDAQ: AMZN)
Number of Hedge Fund Holders: 243
Amazon.com, Inc. is a Washington-based technology company. It is ranked first on our list of 10 streaming stocks to buy now. In addition to providing streaming providers with cloud backup services through the Amazon Web Services platform, the firm has also set up its own streaming service branded Amazon Prime Video. The service has a user base of more than 112 million. The firm has a market cap of 1.6 trillion and posted more than $386 billion in revenue last year.
On June 30, investment advisory Stifel maintained a Buy rating on Amazon.com, Inc. stock with a price target of $4,400, noting that the second quarter earnings shortfall for the firm was contained in online stores which were the lowest multiple in the business.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. with 3.3 million shares worth more than $10.5 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ: AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN): We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment: 1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is in a much different place than when we initially invested. Back in 2014, investors were starting to question whether Amazon’s promise of future earnings potential would actually come to fruition.
Operating income had declined from ~$1.4BN in 2010, to ~$676M in 2012, to just ~$178M by the end of 2014. Expenses were outpacing revenue growth, and investors were questioning whether Amazon’s expenses were truly “investments” as they claimed, or whether it was a structural necessity of the business and thus would never flow to investor’s bottom line.
The critical question was ‘what portion of expenses are truly growth investments vs. structural expenses, and as a result, will Amazon ever be capable of generating significant profits?’
Our analysis indicated that these expenditures truly were the former, and led to the belief that the business’ structural margins would inevitably increase over time. This was our differentiated insight / investment edge.
Fast-forward to today, and our thesis proved correct with operating margins having increased from ~0.2% to ~6%. However due to this success and proving this facet out to investors, Amazon investors have much higher confidence and a better understanding of the company today. I’m not sure we have the same level of differentiated insights, as we did back then.
In addition, I believe the departure of Jeff Bezos and his long-time lieutenants signal a regime change. Perhaps it’s now “Day 1.5” instead of the Day 1 mentality that made Amazon so successful (LINK)… The departures within the past couple years include:
- Jeff Bezos – Founder, CEO, Visionary. Started Amazon in 1994.
- Jeff Blackburn – Joined Amazon in 1998. Oversaw Amazon Marketplace, Advertising,
Amazon Studios, Prime Video, Prime Music, M&A.
- Jeff Wilke – Joined Amazon in 1999. Oversaw Amazon Consumer (ecommerce)
business.
- Steve Kessel – Joined Amazon in 1999. Oversaw Physical Stores, Kindle, and Whole
Foods.
Blackburn, Wilke, and Kessel have each arguably created hundreds of billions of shareholder value. On top of this, Bezos is the visionary and culture-setter behind Amazon. When he and his long-time lieutenants take their hands off the wheel, it is probably time for us to as well.
We sold our remaining shares at an average price of ~$3,240. Based on our initial investment, we made a ~10x return in a little over six years, for a ~45% IRR7. We reinvested the proceeds into our existing portfolio, taking advantage of the prices offered by this latest market draw-down.”
You can also take a peek at 10 Companies that Benefit From Crypto Mining and 10 Best Stocks to Buy According to Steven Baughman’s Divisar Capital.
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This article is originally published at Insider Monkey.
