Streaming war has been intensifying as mainstream and legacy media companies have also entered into the lucrative and fast-growing business. Goldman Sachs has highlighted streaming stocks that can outperform. Which are these stocks should you buy?
While streaming companies were booming even before the COVID-19 pandemic, the trend has only accelerated over the last year. Streaming services are a long-term headwind for cinema chains such as AMC Entertainment, as movie production houses are now releasing new titles simultaneously on their streaming platform and in theatre release.
Goldman Sachs's video streaming stock list
Goldman Sachs rates Disney and ViacomCBS as a “buy” in the streaming industry. The brokerage has called Disney the “best positioned media stock in streaming and for the reopening.” Disney is reopening its theme parks in California after they were shut for a year due to the COVID-19 pandemic.
There's pent-up demand for entertainment, as was highlighted by the strong reception to Godzilla vs. Kong. Disney could also see a good response to the reopening of its theme parks.
Meanwhile, over the last two years, Disney has diversified into streaming, and its subscriber numbers are fast catching up with those of industry giant Netflix, whose growth has tapered down after spiking in the first half of 2020.
Disney expects its total streaming subscriber count to rise to 350 million by the end of 2024. At the beginning of the year, it had only about 146 million subscribers across its platforms, which include ESPN+ and Hulu. Disney stock has already seen a rerating, and its valuation multiples are at their highest in history.
Goldman Sachs identifies the cheapest streaming stock
Meanwhile, Goldman Sachs has called ViacomCBS “significantly undervalued” and “most underappreciated.” The stock plunged in Mar. 2021 amid the sell-off related to Archegos Capital Management.
Citi is also bullish on ViacomCBS stock and has upgraded it to a “buy.” Citi analyst Jason Bazinet said, "To our way of thinking, investors who buy an equity where the multiple already assumes sub-par returns may be a bit safer. And, today, ViacomCBS is valued at the very low-end of streaming peers.”
He also expects the stock’s multiples to expand as markets start valuing the legacy media company in line with streaming peers. Streaming companies tend to have higher valuation multiples than legacy media companies.
Which streaming stock to buy?
Disney, ViacomCBS, and Discovery look like good streaming stocks to buy. While they're not pure-play streaming companies like Netflix, they're growing quickly. Also, in the medium to long term, they could increase their subscription prices. Like ViacomCBS, Discovery stock saw a selling spree amid Archegos Capital fiasco.
What are the best video streaming stocks to invest in?
The outlook for streaming stocks is positive, as the companies offer cost-effective entertainment. While streaming can't replicate the movie-going experience, the market is expected to continue expanding even after the pandemic.
One proxy streaming play worth considering is Amazon, which has exposure to the space through Amazon Prime. The service, which keeps customers close, may be among the reasons Amazon has been so successful in the e-commerce business.