Video and music streaming are gaining a lot of popularity among consumers, and so are investing in these stocks and shares. This is because it is a very convenient way of entertainment and a medium for disseminating information.
Consequently, streaming stocks and shares have spiked over the last decade. And subsequently, this stock market sector has become a popular place to invest capital. However, there are a few caveats investors ought to know about before buying streaming shares. So, let’s take a closer look at this space and explore the risks as well as potential rewards.
What Are Streaming Stocks?
Streaming stocks refer to stocks of companies that specialise in streaming as a medium of entertainment. When the pandemic came along, video streaming platforms, in particular, saw a significant uptick in usage. After all, people needed something to pass the time during lockdowns. And with competition heating up, it created what’s now known as the streaming wars.
Streaming offers a lot of advantages to consumers, most notably in the form of convenience. Individuals, along with groups of friends and family, can become subscribers and watch their favourite shows at any time from anywhere on any modern smart device. With the ability to pick and choose between services, consumers can select and pay for only the content they’re interested in. Combined, this gives quite a large advantage over conventional TV solutions like cable.
While many like to place these companies in the same basket, there are two different primary categories:
- Live Streaming – These are companies that deliver entertainment and information online and in real time. Here the content is not pre-recorded. They are delivered simultaneously when they are made, such as at a football match. Live stream reaches all audiences as long as they have a smart device internet connection and it is linked up to the live stream platform. Youtube and Tik Tok Live are examples of companies in live streaming.
- On-Demand – This is the opposite of a live stream. These businesses provide entertainment to their subscribers, which can be watched at any time. They are typically subscription-based, where individuals can pay with a debit or credit card. But recent shifts in the industry have started seeing the rise of ad-funded platforms. Netflix, Roku Inc, Amazon Prime Video, Paramount Global, and Disney+, among others, are streaming stocks in this category.
What Are The Main Risks And Challenges To Streaming Stocks?
No investment is risk-free, and streaming service stocks are no exception. With that said, let’s explore the primary threat this stock market sector faces.
- Rising Competition – With more platforms entering the arena, the uniqueness of these services are slowly being lost. Consequently, streaming shares must invest considerable capital into creating original content to retain subscribers that may or may not be well received.
- Attractive Pricing – With so many new platforms entering the space, subscription fees are becoming more difficult to increase. And with inflation currently rising, some members have begun outright cancelling their subscriptions to save money.
- Cyber Security – While it’s not often discussed, streaming platforms collect a lot of data on their users, especially those supported by advertisements. However, should this data become exposed due to a cyber security breach, it could open the door to phishing and identity theft.
Key Financial Metrics To Consider When Investing In Streaming Shares
To be able to adequately analyse streaming stocks, investors need to look at and understand the financials. Each industry is different. And often, ratios used for one sector are not applicable to another. In my experience, when analysing streaming stocks, I like to watch the following metrics:
- Debt-to-EBITDA – this ratio measures a company’s ability to pay off its debts.
- Profit Margin – refers to the profit that is left from sales after all expenses have been accounted for.
- Debt-to-Capital Ratio – is used to measure a business’s financial leverage. The debt-to-capital ratio focuses on the relationship between a company’s debt liabilities as part of its total debt base.
- Debt-to-Equity – is used to measure the ratio of debt against the shareholders’ equity. It is a type of financial leverage ratio and is obtained by dividing the total liabilities by shareholders’ equity.
Key Terms To Know When Investing In Streaming Stocks
Businesses operating in this industry are relatively simple compared to something like biotech stocks. But there is still a little bit of jargon that investors should be aware of, I feel.
- Key Frame – This is the full frame of the image in a video.
- Media Player – This is a soft wave that plays audio, video or animation files on the computer.
- OTT (over the top) – This is the delivery of film and content via the internet without requiring users to subscribe to a traditional cable.
- Transcode – This is the direct digital-to-digital conversion of one encoding to another.
- Latency – This is the time that elapses from when the source sends a packet until the destination receives it.
- Screen Resolution – This is the number of pixels in the x and y dimension for the display device.
- Transrate – This is the process of changing a video file from one bitrate to another.
- Stream Key – This is a code used to identify a source of audio or video streaming to show the streaming video on a website.
What Is The Market Size?
According to Fortune Business Insights, the global video streaming market size is currently valued at $473.39bn. That’s certainly nothing to scoff at. But impressively, despite the rapid adoption in recent years, this market size is expected to continue growing at an annualised rate of 19.9%, reaching $1.69trn by 2029!
Narrowing down the scope to focus on live streaming, a similar growth rate appears. A recent report by Meticulous Market Research found that growth in this segment will be around 22.4% between now and 2028 reaching $4.26bn.
Top Streaming Stocks In The UK By Market Capitalisation
Most households in the United Kingdom typically subscribe to at least one streaming service, with Netflix and Amazon Prime being the most popular. However, when it comes to free and ad-supported platforms, BBC iPlayer, ITV Hub, BritBox, and All 4 take the lead.
But when it comes to stocks, the London Stock Exchange isn’t spoilt for choice.
|ITV (LSE:ITV)||£2.83bn||Live, On-Demand||The company provides a streaming service which creates, owns, and distributes content on various platforms worldwide.|
Top Streaming Stock In The US By Market Capitalisation
The table below shows the top five streaming shares in the US by market capitalisation.
|Apple (NASDAQ:AAPL)||$2.37trn||On-Demand||Apple offers on-demand streaming service through Apple tv.|
|Alphabet (NASDAQ:GOOG)||$1.56trn||Live, On-Demand||YouTube TV is a streaming company that offers both live and on-demand video from more than 85 television networks.|
|Amazon.com (NASDAQ:AMZN)||$1.22trn||On-Demand||Amazon provides an on-demand video streaming service through Amazon Prime.|
|The Walt Disney Company (NYSE:DIS)||$196.69bn||On-Demand||Disney Plus is the streaming platform home of Disney, Pixar, Marvel, Star Wars etc.|
|Netflix (NASDAQ:NFLX)||$91.7bn||On-Demand||They engage in the streaming of award-winning TV shows, anime documentaries etc. Netflix shares have performed notably well over the last decade.|
Should I Invest In Streaming Stocks?
Following the gain of popularity and the positive market size growth predictions, the streaming industry presents ample investment opportunities for investors. At least, that’s what I think. However, it’s possible that the golden age of these platforms may have now passed, especially with the level of competition now on the rise.
There is no guarantee that existing industry leaders will be able to retain their thrones. So, any investment I make in this space will be diversified to counter this risk in my portfolio. In my opinion, investing in streaming stocks and shares is probably not suitable for more risk-averse investors.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has published Premium Reports on Netflix, Roku, and The Walt Disney Company. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.