Netflix Stock Tanked After Weak Q3 Report, Could These Video Streaming Stocks Be Better Investments?
The coronavirus pandemic has been a boon for video streaming stocks. We all know Netflix Inc. (NFLX Stock Report) has been the darling of Wall Street and was one of the biggest beneficiaries of the social distancing measures. With the majority of Wall Street analysts in the bullish camp, it’s not surprising that investors have been looking to buy top video streaming stocks in the stock market. Expectations on the streaming giant’s third-quarter earnings report remained high, at least until the closing bell on Tuesday.
The results, however, disappointed investors. But some would have seen it coming. The company missed estimates on both earnings and subscriber growth, which drove NFLX stock further in the red post-market on Tuesday. Netflix reported that it added 2.2 million subscribers in the quarter on a net basis, falling short of its forecasts in July of 2.5 million. This highlights the fresh challenges the company faces from competitors ramping up their own streaming services as the pandemic continues to disrupt the entertainment industry.
Predicting subscriber growth in such an uncertain climate has proved trickier than ever. While Netflix’s forecasts for the second quarter proved too cautious, you could say it’s the outlook for the third quarter was too rosy. The slowdown, well, was expected considering the much larger than expected growth during the first two quarters in the face of the pandemic.
Can These Video Streaming Stocks Continue To Win At-Home Entertainment?
The radical shift in entertainment due to the novel coronavirus has many investors putting their money behind these video streaming stocks in the stock market today. Sure, there will come a time when growth will plateau. This is especially true for pure-play streaming companies like Netflix. No doubt, the novel pandemic has redefined the entertainment sector, but it’s also worth noting that the industry is becoming increasingly competitive. And ultimately, only a few companies will emerge and reign as the leaders of the industry. And if Netflix’s quarter report is teaching us a lesson or two, would it be better for investors to look for more diversified video streaming stocks?
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Best Video Streaming Stocks To Buy [Or Sell]: Walt Disney
Prior to the pandemic, Disney (DIS Stock Report) was well-known for its theme parks and movies. But in late 2019, the entertainment giant has been making waves in the world of streaming by launching Disney+. Who would have thought the new streaming platform could be the major revenue driver for the company in less than a year.
The new streaming platform couldn’t come at a better time just right before the outbreak of COVID-19 in Wuhan, China. Disney+ already had more than 60.5 million subscribers as of early August, and the demand was further boosted by the release of Hamilton and Mulan. Part of the reason why the service gained so much traction could be the platform’s low pricing model. At just $6.99/month Disney+ is nearly half the cost of Netflix.
The initial success of its streaming service will help drive growth opportunities in the coming years. With the pandemic still raging across many parts of the world, it does seem like there is a lot of potential for expansion. Nevertheless, the pandemic continues to be terrible news for Disney’s theme parks and cruises. Nevertheless, the future appears to be streaming, with the company’s recent reorganization. With that in mind, it does seem like DIS stock can benefit from both the rise of streaming and the eventual reopening of the economy.
Best Video Streaming Stocks To Buy [Or Sell]: Roku
Next up, Roku (ROKU Stock Report) is also another big beneficiary of demand for streaming services resulting from the pandemic. The truth is, “cord-cutting” was already increasing, but stay-at-home measures were the catalyst for a surge in sign-ups for streaming services. The average household now likely has more than one subscription to a streaming service, and the answer to managing multiple services on a single interface is Roku. This makes it one of the best stocks to buy in the stock market this year.
Apart from a broad selection of content and 40 million active accounts which is driving its advertising revenue. Remember earlier this year the company also introduced its New Shopper Data program during the second quarter, with Kroger (KR Stock Report) as its first partner of the program. By leveraging a retailer’s shopper data, Roku will be able to give advertisers a better way of targeting viewers with ads. This means that Roku will become a more valuable channel for advertisers. And that could make Roku a preferred destination for brands to reach potential customers.
For Roku, it’s all about expanding the platform business. Lately, the company announced that it will be expanding to Amazon’s Fire TV. Introducing The Roku Channel to the Fire TV viewer base would increase the value of advertisements available on the channel. It may also encourage more media companies to include their content in The Roku Channel. Roku is not only resilient during the pandemic, but it is showing itself as a respectable player in the game. Second-quarter revenue grew 42% year over year to $356 million. As we kick-off, another earnings season, could investors see another strong growth in the third quarter’s report this time? As one of the cheapest stocks on this list in terms of revenue multiple, is ROKU stock a steal?
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Best Video Streaming Stocks To Buy [Or Sell]: Spotify
Yes, I know what you are thinking. Spotify (SPOT Stock Report) is not a video streaming stock. So why is it in this list of video streaming stocks? The reason is that it’s not just video streaming that’s making waves this year. The music platform is also another winner from the pandemic. And that’s why it is worthy of at least some attention from investors. The music streaming leader lies in its strong growth potential. Let’s not forget that there are over three billion smartphone users globally. As more people stream music on their smartphones, Spotify’s user base could grow dramatically. As a comparison, platforms like YouTube and Facebook (FB Stock Report) already have billions of users.
Spotify appears to be building up its exclusive podcast content. Spotify has made its intentions loud and clear. It doesn’t just want to lead in music streaming. It wants to be the largest audio platform in the world. And that may not be all. In July this year, Spotify rolled out video podcasts on its platform. Who knows what will come next?
Audio streaming is still at a relatively early stage in comparison with video streaming. Spotify is clearly the leader of this space, and it’s not resting on its laurels. The company will need to drive strong user growth and offer multiple types of content. Would you be willing to take a chance on SPOT stock ahead of its earnings report next week?
