In 2022, entertainment stocks took a big hit as growth in the sector slowed due to increased competition and changing consumer habits away from home entertainment.
However, there are still many opportunities for the streaming industry as viewers and advertisers move away from linear TV. To capture the growth and evolution of the entertainment sector, here are three of his stocks that investors should be watching right now.
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1. netflix
netflix (NFLX 0.18%) While still an industry leader, the company is at a transition point in several ways. In the company’s fourth-quarter earnings report, management announced that founder and co-CEO Reed Hastings will step down from his position as co-CEO and assume his executive chair. His former COO, Greg Peters, will join Ted Sarandos as co-CEO.
A change of leadership has taken place as Netflix has just launched a new ad-supported tier and is beginning to crack down on password sharing. Both are expected to improve revenue growth, but subscriber growth is also slowing, which is slowing revenue growth. Only 2% revenue in Q4, 10% at constant currencies However, the company expects this number to accelerate into 2023 as the impact of advertising and crackdowns on password sharing begin to bear fruit. Additionally, free cash flow nearly doubled to $3 billion, which he forecasts, indicating that the business model is finally expanding.
In a letter to shareholders, the company shared charts showing streaming video accounts for less than 40% of TV viewing even in the United States, indicating there is still a large streaming market to penetrate.
Despite its maturity, Netflix still has room to grow, and if it can fend off competition while increasing profit margins, this stock should be a winner.
2. Roku
Arguably, no entertainment stock has that much upside potential right now. Roku (Roku -2.47%)Shares of the major streaming platforms plunged more than 80% last year as headwinds in the advertising market sharply slowed revenue growth, reporting heavy losses after increasing investment during the streaming boom early in the pandemic.
However, there is reason to believe that Roku could turn around. Active accounts and streaming usage continue to grow. At the beginning of January, the company said it had over 70 million global active accounts, an increase in 2022 over 2021, and that streaming hours had grown 19% in 2022 to reach 87.4 billion.
And Roku should have a long runway of growth. Netflix and many of its competitors are still in the early stages of exploring ad-supported streaming, and linear TV still accounts for the majority of viewing time in the US and around the world.
As the economy picks up and the digital advertising market improves, Roku’s financial results should improve. Unlike subscription-based streaming, Roku benefits directly from viewing time through advertising, giving it an edge over other streaming stocks in a recovery.
3. Disney
Like other entertainment stocks, disney (DIS) It struggled last year as growth in the streaming business slowed. The company ended the year with a $4 billion loss in its direct-to-consumer segment, and its linear TV business continues to decline as well.
Disney is also embroiled in a battle with activist investor Nelson Peltz, who thinks the stock is undervalued.
The company reinstated CEO Bob Iger in November, admitting the business was failing under former CEO Bob Chapek. Iger has been busy changing the organizational structure, shifting the company’s focus back to “storytelling,” boosting streaming profitability, and lowering the prices of Disney’s theme parks after Chapek raised prices. .
Despite a sluggish stock price, Disney has a vast library of intellectual property, including Disney classics, Marvel superheroes, and Star Wars, plus complementary theme parks, consumer products, and video entertainment businesses. The company also expects streaming losses to narrow and expects to break even in the segment by the end of 2024. , which should give the stock a tailwind.
In his first tenure as Disney chief, Iger turned in excellent profits, acquiring entertainment assets at Marvel, Lucasfilm, Pixar, and Fox to build the company it is today. Disney has a lot of upside potential in the next few years if he can get the company off the ground and the streaming business heading towards profitability. could raise the stock price significantly.
Jeremy Bowman has held positions at Netflix, Roku, and Walt Disney. The Motley Fool has positions in and endorses Netflix, Roku and Walt Disney. The Motley Fool recommends Walt Disney’s January 2024 $145 long call and Walt Disney’s January 2024 $155 short call. The Motley Fool’s U.S. headquarters has a disclosure policy.
