The Best Streaming Stocks to Watch

Netflix

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 and has continued to report subscriber growth since.

Thanks to its longevity in the industry, Netflix is one of the only streaming companies whose services are actually generating consistent profit. In full year 2021, operating income was $6.2 billion, an increase of 35% year on year.

In the full-year 2022, despite revenue climbing a modest 6.5%, rising costs caused operating income to fall 9.1% year on year. We can see a similar yet improved scenario in the first half of 2023, where a 3.2% increase in revenue was not enough to offset rising costs, which led to operating income coming in flat.

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 but still closed 2022 down more than 50% for the year.

This upwards trajectory continued in 2023, with share price rising almost 50% in the first seven months of the year. However, share price remains roughly 58% below its all-time high recorded in 2021.

For those interested in investing in streaming services, 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 evidenced by recent results, increased competition and the rising cost of living could cause difficulty in the future.

Disney

The Walt Disney Company launched their much anticipated streaming service, Disney+, late in 2019, which they really couldn’t 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+, Disney is vying with Netflix for the crown of most subscribers. Whilst Disney briefly overtook Netflix towards the end of 2022 Netflix has reclaimed its lead in 2023.

Like Netflix, Disney’s share price had a year to forget in 2022, plummeting by 44% by the close of the year. Unlike Netflix, Disney’s stock has not begun to recover and remained flat in the first seven months of the year.

Although it’s not the only consideration, much of the recent sour sentiment amongst investors has come from its streaming service which, despite high subscription numbers, has been reporting big losses. In fiscal-year 2022, operating losses emanating from Disney’s Direct-to Consumer (DTC) division, which houses its streaming services, were reported at more than $4 billion, far deeper than the $1.7 billion loss from the previous year. In the first nine months of fiscal-year 2023, losses were reported at $2.2 billion.

These are big numbers which, combined with other rising costs, have weighed on profitability, with operating income falling 6% in the first nine months of fiscal-year 2023. These losses have also come at a time that revenue and operating income generated by Disney’s linear (i.e. traditional) television services have been struggling, both falling over the same period by 6% and 27% respectively.

However, whilst Disney’s Media and Entertainment Distribution segment may be struggling, its Parks, Experiences and Products are booming, and herein lies a potential benefit of investing in Disney.

Disney is more than simply a streaming service stock, it is a well-diversified global entertainment giant, with multiple streams of revenue. Although Disney+ is currently a loss-making venture, Disney expect it to hit profitability in 2024, with recent price hikes and an upcoming expansion to its ad-supported tier both designed to help achieve this.

ITV

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 of streaming stocks?

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.

So far, the streaming service appears to be performing well, with monthly active users and total streaming hours increasing 29% and 33% year on year in the first half of 2023. This increased streaming activity helped drive an increase of 24% in digital advertising, although total advertising fell 11%, reflective of a slowdown in the market.

This slowdown in advertising revenue does represent a challenge for ITV. Total revenue and adjusted EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) fell 1% and 52% respectively in H1 2023, with management citing a tough advertising market and planned investment in ITVX.

Unlike the other two streaming stocks, ITV currently pays a dividend, with the stock yielding more than 7% at the time of writing. However, Disney has announced that it plans to reinstate its dividend by the end of 2023.

ITV shares have been following a long-term downward trend, with share price down almost 7% in 2023 and falling by more than 70% since 2015. Continued growth from ITVX could see a shift in investor sentiment, however, this is by no means guaranteed and it may be prudent to keep this streaming stock in the watch list for now.