All the bloviating and blather about the “right way to watch TV” has given stocks that enable “binge viewing” a patina of sin on a par with alcohol, tobacco, and casino stocks. “Gluttonous” and “addictive” are the operative words. If there are words that should be more delightful to the ear of an investor, I don’t know what they are, except for “accelerating revenue growth.”
And what are these new “sin” stocks? Netflix, Inc. (NASDAQ:NFLX), Comcast Corporation (NASDAQ:CMCSA), Yahoo! Inc. (NASDAQ:YHOO), and Amazon.com, Inc. (NASDAQ:AMZN).
Previously on … Netflix
Binging has been manna to Netflix. While the company lost income from postage and handling costs with its DVD-by-mail model, streaming is much more convenient and “stickier” for its subscribers. Netflix, Inc. (NASDAQ:NFLX) gained 20 million subscribers after a free trial included thirteen episodes of the first season of its House of Cards, an original political drama series starring Kevin Spacey.
There are advantages to one-fell-swoop binge viewing for the subscriber-less of the previously on recaps, a more immersive experience, and a more cohesive overview of multiple storylines. One thing that Netflix is doing right to enable more binge viewing with its arsenal of algorithm wielding engineers is a post play button that immediately cranks up the next episode. To paraphrase The Washington Post, it allows the decision-making executive functions of the brain to submit to the more reptilian pleasure centers.
Netflix, Inc. (NASDAQ:NFLX) going forward will be challenged to acquire content that invites binge viewing. Surprisingly, it is the highest quality shows are most binge-worthy, i.e. critically acclaimed dramas like Mad Men, Game of Thrones, Breaking Bad, and Downton Abbey. Another option they are pursuing is creating original content.
As Netflix generally gets broadcast content a year later after live airing, episodes draw in viewers to gorge on marathons to either catch up or indulge more. Broadcast wins when bingers eagerly anticipate their fix of the newest episodes on live TV.
Netflix, Inc. (NASDAQ:NFLX) has a video library of 75,000 titles that are constantly in flux with new agreements and expirations. However, it has few original hits: Lilyhammer, Arrested Development, and House of Cards. This summer it debuts a women’s prison comedy, Orange is the New Black.
Yahoo! Inc. (NASDAQ:YHOO) is a budding media empire under CEO Marissa Mayer. Her latest attempt to buy Hulu, a website and TV top streaming service featuring video and network programming, is very promising. Hulu is a big winner in the binging game, with seven buyers sniffing around it. Hulu would be a huge get for Mayer, bringing in 3 million paid Hulu Plus subscribers and more bleary eyeballs for Yahoo!. According to a 2013 Harris survey, almost 80% of American adults who have Internet enjoy TV with either Netflix, Inc. (NASDAQ:NFLX) or Hulu.
Even if Mayer doesn’t buy Hulu, the company announced a new lineup of five original shows starring popular actors like Ed Helms and John Stamos. All will be presented available to binge.
Yahoo! is still an intriguing proposition even after its run-up, with a trailing P/E of 7.61. Its PEG is getting extended at 1.38. But compared to Netflix’ trailing P/E of 518.41 or even its forward P/E of 67.79 and PEG of 7.80 Yahoo is a huge bargain.
Amazon.com, Inc. (NASDAQ:AMZN) is the alternative to Netflix, Inc. (NASDAQ:NFLX) streaming with Prime, the “gateway” to binging and other Amazon benefits like free shipping on its e-commerce sites. Amazon Studios is creating original content and not local access cable quality, either. Big production values and character actors like John Goodman in Alpha House helped Amazon.com, Inc. (NASDAQ:AMZN) Prime viewers winnow down 12 original pilots to five greenlighted for production.