The pandemic has spurred streaming companies: people stayed home and streamed more TV shows, films and songs. Many of these stocks made big returns for investors in 2020. But they could well increase further in 2021 and beyond.
The global video streaming market could grow at an average annual growth rate (CAGR) of 18.3% between 2019 and 2026, according to Valuates reports. The global music streaming market could also grow at a CAGR of 17.8% from 2020 to 2027, according to Grand View Research.
Hence, forward-thinking investors should hold a few promising streaming stocks. Here are three solid stocks that are capitalizing on this trend and are still buying in 2021: Year (WKN: A2DW4X), Netflix and Spotify (WKN: A2JEGN).
1st Year
Roku is the market leader in so-called Connected TV sets (CTV). According to eMarketer, Roku is expected to claim 46.9% of the US television market this year. The reason for this is the brisk sales of its streaming devices and smart TVs. Roku’s share is expected to rise to over 50% by 2022. That puts you far ahead of rivals like Amazons Fire TV.
Roku’s sales increased 57% year over year in the first nine months of 2020. Sales of its lower-margin players, which accounted for about 29% of sales, rose 40%. Revenue from the higher-margin software platform, which generates 71% of revenue from advertising and content distribution partnerships, increased 66%.
In the third quarter, Roku hardware shipments grew at the highest rate in over seven years. The number of active accounts grew 43% year over year to 46 million and the average revenue per user (ARPU) grew 20%. But the gross margin shrank because the pandemic cut advertising budgets everywhere.
Roku is still unprofitable and the net loss widened in the first nine months compared to last year. Analysts don’t expect Roku to be profitable anytime soon. But they expect sales to grow 54% this year and another 39% next year.
Roku remains a risky stock, but it’s not overly expensive at 19 times expected sales. Especially when tech companies that are generating slower growth are trading at much higher price-to-sales ratios.
2. Netflix
Netflix is the world’s largest streaming video platform by paid subscribers. The total number of paid subscribers rose 23% year over year to 195.15 million at the end of the third quarter. Revenue and profit increased 25 and 73%, respectively, in the first nine months of 2020.
Netflix attributes some of that growth to lockdown. That said, both revenue and subscribers are expected to grow another 20% year over year in the fourth quarter.
For the year as a whole, the analysts expect an increase in sales and profits of 24 and 52% respectively. For the next year they expect further sales and profit growth of 18 and 44% respectively. That’s robust growth rates for a stock trading at 58 times future earnings.
Netflix could face tougher competition over the next year as competitors like Disney and AT&T step up their streaming efforts. However, Disney and AT & T’s streaming platforms are not yet as profitable as Netflix. In addition, Netflix’s strong range of original content could attract customers to the platform.
Additionally, Netflix’s recent price hikes show that the company still has great pricing power over Disney, AT&T, and other challengers. These strengths make Netflix a great all-round provider in the streaming market.
3. Spotify
Spotify is the world’s largest streaming music platform in terms of the number of paying listeners. The number of Monthly Active Users (MAUs) grew 29% last quarter to 320 million year over year. The number of paying subscribers rose 27% to 144 million. The number of ad-supported MAUs rose 31% to 185 million.
Spotify’s revenue grew 16% year over year in the first nine months of 2020. However, high content costs and the sluggish advertising market throughout the pandemic reduced margins and resulted in a net loss.
For the fourth quarter, Spotify expects revenue to grow 8 to 19% year over year, MAUs to increase 11 to 27% and gross margin to remain flat. Analysts expect sales to grow 41% this year and 22% next year. Also, that the net loss will decrease in the next year.
Spotify stock more than doubled in 2020, but the stock still looks cheap at 5 times sales next year. Probably due to concerns about the lack of profits and competition from tech giants like Apple.
However, Spotify’s stable growth in MAUs and paying listeners suggests there is still plenty of room for multiple streaming music platforms to grow. Gross margins should increase after the end of the pandemic and advertisers should increase their spending again. New strategies – like the recent acquisition of podcast technology company Megaphone and the upcoming expansion into South Korea – could generate new growth. Hence, Spotify should remain the top bet in the streaming music market for the foreseeable future.
The post The Best Streaming Stocks for 2021 appeared first on The Motley Fool Germany.
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The Motley owns shares of and recommends Amazon, Apple, Netflix, Roku, Spotify Technology, and Walt Disney. Leo Sun owns stocks of Amazon, Apple, AT&T, and Walt Disney. this article appeared on Fool.com on December 28, 2020 and has been translated for our German readers.
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