Step Into The Future With These Three Streaming Service Stocks

Americans are switching to digital streaming services over traditional satellite and cable TV services more quickly than ever. You can watch TV and movies whenever you want. Many streaming providers offer thousands of options, and their catalogs are continually growing.

The global video streaming market was worth $59.14 billion in 2021. It is expected to grow at a compound annual rate (CAGR of 21.3%) between 2022 and 2030. The industry is expected to grow with artificial intelligence (AI), blockchain technology, and synthetic biology (AI) innovations. Market growth is looking to be fueled by the rapid adoption and growing popularity of mobile phones.

The worldwide market has also been positively affected by the coronavirus pandemic. The global streaming market grew by 25% in 2021. A 2020 Motion Picture Association report states that the worldwide streaming market will grow 25% in 2021.

You no longer need an iPod or MP3 player to listen to music on the go. With the advent of digital music streaming and smartphones, listening to your favorite songs is now easier than ever. Spotify and Apple Music are the most extensive music streaming services. They each offer over 50 million pieces to their subscribers for a small monthly fee. These services allow users to listen to and download podcasts or audiobooks.

While the music streaming market is only half as valuable as video streaming, it is growing at a CAGR of 14.7% between 2022 and 2030. The increasing use of 5G connectivity is one of the most prominent trends in the global marketplace, allowing service providers to offer high-quality audio streaming.

The streaming service provider market has seen rapid growth in recent years. It will likely continue to grow faster than other industries. With the advancement of technology, users can now consume more audio and digital content than ever before, thanks to intelligent devices and better technology. This, along with the affordable pricing, allows users to take control of traditional TV and radio service providers. It creates a bright future for streaming service providers.

Grading Streaming Stocks with AAII’s A+ stock Grades

It is guided to have a framework to compare companies when analyzing them. AAII developed the A+ Stock Graders to help you evaluate companies based on five factors that have been proven to identify market-beating stock stocks over the long term: value; growth; momentum; earnings estimation revisions (and unexpected results)

Based on the fundamentals of three streaming service stocks (Disney, Netflix, and Spotify), the following table summarizes the attractiveness using the A+ Stock Gradings.

Summary of the A+ Stock Grade Summary for Three Streaming Stocks

What A+ Stock Grades Reveal

Walt Disney is an entertainment company worldwide. Its segments are Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences, and Products (DPEP). DMED is the company’s global film, episodic, and television content production and distribution activities. The DMED business lines include linear networks, direct to consumers, and content sales/licensing. The DPEP segment consists of the sale and rental of vacation club properties and admissions to the parks. It also sells merchandise, food, and beverage at the resorts. Content sales/licensing is the business of selling episodic and film content on television, subscription video-on-demand (TV/SVOD), and home entertainment markets.

Stocks with higher quality characteristics have more significant upside potential and lower downside risk. The Quality Grade was backtested and found that stocks with higher quality grades outperformed those with lower degrees from 1998 to 2019.

Disney has a Quality Grade B with a score of 64. The A+ Quality level is the percentile rank for the average of the percentile rankings of return on assets (ROA), returns on invested capital (ROIC), buyback yield (change in total liabilities), and accruals to investments and Z prime bankruptcy risk (Z). Variable scores can consider all eight or the remaining valid measures if they are invalid. Stocks must have at least one reasonable effort (non-null) and the corresponding ranking for four of eight quality measures to be given a Quality Score.

The company is ranked highly in total liabilities to assets and F-Score. Disney’s total liabilities to assets have changed by -1.4%, while its F-Score is 7. The industry’s average change in total assets to penalties is 2.2%. This is significantly lower than Disney’s. F-Score, a number between zero to nine that measures a company’s financial strength, is a number between zero or nine. It measures its profitability, leverage, liquidity, and operational efficiency. Disney is in the 29th percentile for gross income to assets.

Based on its Momentum Score 32, Disney received a Momentum Grade D. It ranks low in its relative weight over the past four quarters. This score is calculated from an above-average relative strength of 0.6% and 2.5% in the second-most recent quarters, offset by below-average relative price strengths of 22.2% and 14.7%, respectively, three quarters ago. From the most recent quarter, the scores are 28-65, 22- and 71, respectively. The four-quarter weighted relative price strength is -12.2%. This translates into a score of 32. The relative strength rank for the four-quarters is the close price changes over the last four quarters. The most recent quarter’s price change gets 40%, and the previous three quarters get a weighting of 20%.

Based on its value score of 82, the company is rated F. This value grade indicates that it is costly. This is obtained from a huge price-earnings (P/E) ratio of 72.6 % and a price to free-cash-flow (P/FCF) ratio of 126.7 %, which grades in the 94th percentile. Based on quarterly solid year-over-year operating cash flow growth rates of 27.2% and -28% over five years, Disney’s Growth Grade is D.

Netflix NFLX is an entertainment company. It offers streaming memberships that allow members to access a wide range of television series, feature films, and mobile games in more than 190 countries. Members can view as many as they wish at any given time. Without commercials, members can play, pause, and resume watching. The company also offers DVD-by-mail in the U.S. Several streaming membership options are available, with prices varying depending on the country and features. It charges between $27 and $27 per month. You can stream content to your internet-connected devices, including televisions, digital video players, and TV set-top boxes. The company licenses to acquire and produce original programming.

The Earnings Estimate Revisions Grades measure analysts’ views on the firm’s short-term prospects. Netflix’s Earnings Estimates Revisions Grade is B. This grade is positive. This grade is based upon the statistical significance of Netflix’s two most recent quarterly earnings surprises and the percentage change in the consensus estimate for the current fiscal years over the past month or three months.

Netflix reported a positive earnings surprise in the first quarter of 2022 of 22%. Netflix said a positive earnings shock of 62% in the previous quarter. The consensus earnings estimate for 2022’s second quarter has declined from $3.007 per share to $2.966 per share over the past month due to 12 upward revisions and 18 downward revisions. Based on 17 upward and18 downward revisions, the consensus earnings estimates for the full-year 2022 have increased 0.1% to $10.890 from $10.901 per share over the past three months.

Based on its Value Score, the company is rated C. This is an average value grade.

Netflix’s Value Score rating is based on several traditional valuation metrics. Scores for shareholder yield are 44, 37, and 54, respectively, for enterprise value and earnings before interest taxes, depreciation, and amortization (Ebitda), which indicate that the company is valued at a lower level. The company has a shareholder return of -0.2%, an EBITDA/EV ratio of 8.5, and a 17.9 price-earnings ratio. A lower price-earnings rate is considered to be a better value. Netflix’s price ratio is lower than the sector median of 21.1. The company’s only value metrics are the price-to/sales ratio and the price-to-book-value ratio. These are both lower than the industry median.

The Value-Grade is the percentile rank of the median of the percentile ranks of the valuation metrics mentioned above, along with the price to free-cash-flow ratio.

Netflix’s Quality Grade is A. This is based on its Quality Score (83), which is very strong. This score is based upon a high return of invested capital of 95.4% and a high rate of return on assets of 87. The company’s return on assets measures its profitability relative to its total assets. The company’s ability to efficiently govern its assets and generate profits is reflected in the higher return on investments. Amounts to support, which score six or less, is the only quality metric that the company has that is lower than the industry median.

Spotify Technology SA (SPOT) is a Luxembourg-based business that provides digital music streaming services. Users can discover the latest releases and playlists. These playlists include songs from artists and music lovers. The company also offers personalized collections and playlists that allow users to play their favorite tracks, find new ways, and create a personal collection. Spotify Premium is available to users. It includes shuffle play and unlimited skips. Spotify Premium also offers a variety of features, such as Spotify Premium, which allows for offline listening, high-quality audio, offline listening, and the ability to play any track. Spotify Ltd. is one of the subsidiaries. It is available in more than 20 countries.

Spotify has a Quality Grade B with a score of 69. Spotify ranks highly in terms of gross income to assets and F-Score. Spotify’s gross income to assets is 38.6%, and its F-Score is 8. Spotify’s industry average gross income is 26.9%. This is significantly lower than Spotify’s. Spotify’s F Score is 95th percentile among all stocks. The sector median is 3. However, Spotify is in the 28th percentile for its return on capital investment.

Spotify reported a positive earnings surprise in the first quarter of 2022, 187.9%. In contrast, Spotify declared a positive earnings surprise in the previous quarter of 50.6%. The consensus estimate for 2022’s second quarter has declined from $0.015 positive earnings to a loss of $.601 per share as one hike revision and 19 downward revisions. The consensus earnings estimate for the full-year 2022 has declined 18.5%, from $0.542 to $0.642 per share, based on four up-ward modifications and 12 downward revisions.

Based on its Value Score, the company is rated F. This is considered extremely expensive. This is derived from a very high price earnings ratio of 278.4 and an enterprise value to EBITDA ratio of 128, which ranks in the 97th percentile. Based on 75 points, Spotify earned a Growth Grade B. Spotify has five-year solid operating cash flow growth rates of 29% and quarterly earnings per share growth rates of 454.3%. However, the quarterly operating cash flow growth rate is -43.1%.

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Robert Scoble
Robert is the assistant managing editor for HC News, overseeing coverage of markets, companies, strategy and business leaders. Originally from Boston, Scoble began his journalism career in 1997 & now resides outside New York.

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