Investing in Streaming Stocks in 2023
The way people consume television is changing. More and more people are spending more and more time streaming their favourite shows instead of using traditional viewing services.
Streaming certainly seems to be the future of television but with so many companies entering the space, who is best poised to succeed? Who will win the streaming wars? In this article, we will examine 3 streaming stocks for investors to consider in 2023.
Streaming Stocks to Watch in 2023
Streaming has been on the rise around the world for a number of years. However, it was the outbreak of the Covid-19 pandemic in 2020 which really drove growth in this sector.
With many confined to their homes, people had lots of time on their hands to watch television, with streaming services particularly benefitting from this change in behaviour.
During 2020, global subscriptions to streaming services surpassed 1 billion, a rise of 26% year on year. Now the world has reopened post-Covid, people are less reliant on streaming services for entertainment, but that doesn’t mean that further growth doesn’t lie ahead.
In the US, streaming services have overtaken cable and broadcast to claim the largest share of total television viewing, reaching this milestone for the first time ever in July 2022. So, how can investors take advantage of this trend? Which streaming stocks should you consider adding to your portfolio in 2023? In the following sections we highlight 3 streaming stocks to watch.
When it comes to streaming stocks, Netflix is likely the first to come to mind. After all, it was Netflix that really got the ball rolling on streaming as we know it today, and still commands one of the largest subscriber bases in the industry.
The streaming giant had a challenging first half of 2022, with total subscribers falling for the first time in ten years in the first quarter, before falling again in the second. Fortunately, it snapped this unwelcome streak in the third quarter, adding more than 2.4 million subscribers which improved sentiment amongst investors.
Netflix’s disappointing subscriber losses in the first half of 2022 were echoed in its share price, which plummeted more than 70% in the first six months of the year. Share price consequently recovered somewhat, rising 69% in the second half of the year, but still closed 2022 down more than 50% for the year.
Thanks to its longevity in the industry, Netflix has one of the only streaming operations which is actually generating consistent profit. In full year 2021, operating income was $6.2 billion, an increase of 35% year on year. However, operating income fell almost 10% to $5 billion in the first nine months of 2022, reflecting Netflix’s subscriber struggles.
In an attempt to diversify their revenue streams, Netflix recently partnered with Microsoft in order to unveil a new, cheaper, ad-supported subscription tier for consumers. As well as potentially boosting revenue from advertising, this cheaper alternative may increase Netflix’s appeal to more budget-conscious consumers.
For those interested in gaining exposure to the streaming industry, Netflix is one of the few pure-play streaming stocks available, and the fact that it is generating profit is a big positive. However, as 2022 demonstrated, increased competition and the rising cost of living could cause difficulty in the future.
The Walt Disney Company launched their much anticipated streaming service, Disney+, late in 2019, which they could not have timed more perfectly.
With the subsequent outbreak of coronavirus and the stay-at-home orders which followed, streaming subscriptions for Disney+ boomed.
At its inception, Disney+ set itself a target of 60 – 90 million subscribers by the year 2024. By November 2020, subscribers had surpassed 73 million and in October 2022 total subscribers stood at 164 million.
Including Disney’s other streaming offerings, Hulu and ESPN+, the company surpassed Netflix last year in terms of total subscribers, with a grand total of 236 million in October 2022.
Like Netflix, Disney’s share price had a year to forget in 2022, plummeting by 44% by the close of the year.
The rising cost of living means consumers are revaluating their spending, and investors are concerned that many discretionary items such as streaming subscriptions are in danger of being trimmed from budgets.
Furthermore, in the uncertain economic climate investors have shunned stocks which lack robust fundamentals, and deep losses emanating from Disney’s Direct-to-Consumer (DTC) segment, which houses Disney+, may have played a role in the stock’s struggles last year.
In the year ending 1 October 2022, Disney’s DTC division made an operating loss of $4 billion, deepening losses of $1.6 billion from the previous year. Nevertheless, these considerable costs have led to Disney stealing significant market share from Netflix.
Moreover, these losses were more than offset by operating income from Disney’s other divisions, particularly Parks, Experiences and Products, whose operating income soared year on year thanks to the removal of Covid-19 restrictions.
Herein lies a benefit of investing in Disney, although one which may not appeal to everybody, the company is more than a streaming stock, it is a well-diversified global entertainment giant.
ITV is a free-to-air public broadcast television network in the UK, which was launched back in 1955. So, what’s it doing on our list?
ITV had a not-so-popular video-on-demand service called ITV Hub for over a decade. However, on 8 December 2022, the company replaced ITV Hub in favour of a new streaming service named ITVX, which promised to feature substantially more programming than its predecessor.
At the time of writing, a month into existence, ITV have reported that their new streaming service has so far attracted strong demand, with streaming hours for the month increasing 55% year on year.
Although both Netflix and Disney have plans to introduce cheaper ad-supported subscription tiers to their streaming services, neither has yet done so in the UK. ITVX, on the other hand, is one of the few free streaming services available to UK customers.
ITVX’s basic, ad-supported, subscription tier is completely free, something which will potentially attract Brits looking to cut costs due to the high cost-of-living in 2023.
After hitting an annual low of around 55p in September 2022, ITV shares had a resurgence for the remainder of the year, rising by 36%. However, it closed 2022 with a total loss of 32% for the year and, as evidenced in the chart above, is following a long-term downward trend.
Despite share price weakness, ITV’s fundamentals remain fairly robust. In the first half of 2022, total revenue grew 9% to £2 billion, whilst statutory operating profit rose 46% to £228 million.
Whilst Netflix doesn’t pay a dividend, and Disney is yet to resume theirs since the outbreak of the coronavirus pandemic in 2020, ITV currently pays an attractive dividend, which yields 6.4% at the time of writing.
Nevertheless, given that the company’s new streaming service is still very young, it may be prudent for investors looking to gain exposure to streaming stocks to wait and see how the service performs in the coming months.
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