Written by MarketBeat Stiaff
October 30, 2020
2020 has created a real-life movie script that many production companies could have only dreamed of. But that dream has been a nightmare for many of the world’s leading entertainment stocks. Movie theaters and live entertainment venues remain shut down. The words “pent-up demand” have never resonated more. Consumers are desperate for ways to be entertained.
That may make it an odd time to consider looking at entertainment stocks. But that would be a mistake. In fact, some entertainment stocks have been among the biggest pandemic winners. This is a trend that is likely to continue as the holidays arrive. The phrase “home for the holidays” is likely to have a new meaning this year. That means consumers will still be looking for ways to be entertained. And now is the time for you to prepare your portfolio for that move.
To be clear, the novel coronavirus was not due to poor management from any company. And you can bet that in the future, many companies will leave some room in their balance sheet for future “acts of God.” But in the meantime, some entertainment stocks have been pandemic winners. And that means they will likely continue to be winners as long as the pandemic lingers.
Quick Links
- Activision Blizzard
- Electronic Arts
- Netflix
- Disney
- Spotify
- Roku
- Best Buy
#1 - Activision Blizzard (NASDAQ:ATVI)
We’re coming up on the holidays. And that’s great news for investors in Activision Blizzard (NASDAQ:ATVI). The company is seeing growth in its Call of Duty franchise. Although Epic Games’ popular Fortnite remains the most popular shooter game, there is tangible evidence that Call of Duty is beginning to close that gap.
But Activision has more than Call of Duty in its quiver. The company also bought the company that created the addictive mobile phone game, Candy Crush. And with 5G smartphones and other mobile devices likely to be high on people’s wish list this year, it’s all the more reason to buy ATVI stock now.
In its last earnings report, Activision’s management called for an impressive 19.3% year-over-year net bookings. This was due to seeing its player base grow 30% on a YOY basis to be greater than 100 million monthly active players.
ATVI stock is up 33% in 2020 and looks to have a long runway as the holiday season approaches.
About Activision Blizzard
Activision Blizzard, Inc, together with its subsidiaries, develops and publishes interactive entertainment content and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Activision, Blizzard, and King. It develops and distributes content and services on video game consoles, personal computers, and mobile devices, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision and Blizzard products.
Read More - Current Price
- $94.42
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#2 - Electronic Arts (NASDAQ:EA)
Another video game stock to look at is Electronic Arts (NASDAQ:EA). While Electronic Arts and Activision Blizzard are not a true duopoly, they are the market's two largest players. One of the primary drivers for Electronic Arts is its Madden franchise.
The company got a big lift when the National Football League (NFL) forged a path ahead to start its season despite the pandemic. Demand for its latest Madden title would have been high anyway, but there’s little doubt that having the NFL playing football is a boost to the franchise.
Electronic Arts reports earnings in November. Analysts will be looking to see if the company will confirm its guidance for a growth of 108% year-over-year increase in fiscal 2021 net bookings (the company’s fiscal year ends in April 2021).
EA stock is up 16% for 2020. Although revenue and earnings will be down on a YOY basis, the company is still expected to beat expectations in their upcoming earnings report.
About Electronic Arts
Electronic Arts Inc develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It develops and publishes games and services across various genres, such as sports, racing, first-person shooter, action, role-playing, and simulation primarily under the Battlefield, The Sims, Apex Legends, Need for Speed, and license games from others, including FIFA, Madden NFL, UFC, and Star Wars brands.
Read More - Current Price
- $147.80
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $165.37 (11.9% Upside)
#3 - Netflix (NASDAQ:NFLX)
With a stock that’s climbed nearly 350% on a trailing five-year basis, it’s hard to look at Netflix (NASDAQ:NFLX) as a buy-on-the-dip opportunity. But not because the company continues to add subscribers (it does) or that it is expanding into other countries (it is). Some investors should get excited because the pandemic has given Netflix a chance to get free cash flow (FCF) positive.
But this may be just a fluke of accounting. With the company not producing original content due to the pandemic, the company posted positive free cash flow for the first time in the third quarter. However, all eyes will be on the fourth quarter. Netflix is beginning to create new content again, and they are projecting a best-case scenario that would have the company break even on FCF, or they could post a loss of around $1 billion.
But that would still be a good start towards suggesting the company could finally start to generate positive FCF regularly.
About Netflix
Netflix, Inc provides entertainment services. It offers TV series, documentaries, feature films, and games across various genres and languages. The company also provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, TV set-top boxes, and mobile devices.
Read More - Current Price
- $909.05
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $807.70 (11.1% Downside)
#4 - Disney (NYSE:DIS)
If you’re looking for another entertainment stock to buy, look at Disney (NYSE:DIS). Although I don’t spend a ton of time on social media, I’ve noticed that families are once again going back to Disney World. But that’s not the reason I like Disney stock. To say Disney’s streaming service, Disney+, has been a success is an understatement. And to that end, the pandemic was a mixed blessing.
On the one hand, the company’s theme park business was devastated and may continue to be for a long time. However, the company has continued to grow subscribers to its streaming service. The company already saw large increases in subscribers after the launch of “Hamilton” and “Mulan”. And in October, Disney announced its latest Pixar movie, “Soul,” will also go direct to streaming on Christmas Day.
The long-term outlook for DIS stock will depend on the recovery of all its business units, but for now, the company’s calculated move into streaming is helping to keep the company top of mind for consumers and why Disney stock remains a buy.
About Walt Disney
The Walt Disney Company operates as an entertainment company worldwide. It operates through three segments: Entertainment, Sports, and Experiences. The company produces and distributes film and television video streaming content under the ABC Television Network, Disney, Freeform, FX, Fox, National Geographic, and Star brand television channels, as well as ABC television stations and A+E television networks; and produces original content under the ABC Signature, Disney Branded Television, FX Productions, Lucasfilm, Marvel, National Geographic Studios, Pixar, Searchlight Pictures, Twentieth Century Studios, 20th Television, and Walt Disney Pictures banners.
Read More - Current Price
- $112.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $123.58 (10.3% Upside)
#5 - Spotify (NYSE:SPOT)
No matter what school of thought you follow, the pandemic will still be an issue through the first half of 2021. This means that the millions of Americans working from home will continue to do so. And that’s good news for Spotify (NYSE:SPOT). When they’re not on a Zoom call, these workers will frequently want the white noise in the background. And Spotify is about more than music. Adding a lineup of podcasts has been a clear winning strategy for Spotify.
On their October 29 earnings report, the company had a slight miss on the top and bottom lines, but the stock's overall trends remain strong. Consider that monthly active users (MAUs) increased by 29% on a year-over-year (YOY) basis. And the company also saw a 27% growth in its Spotify Premium subscribers (i.e., those that pay to skip the ads). And although earnings were down based on GAAP, the company still reported positive free cash flow nearly double on a YOY basis.
About Spotify Technology
Spotify Technology SA, together with its subsidiaries, provides audio streaming subscription services worldwide. It operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
Read More - Current Price
- $460.88
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 22 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $429.96 (6.7% Downside)
#6 - Roku (NASDAQ:ROKU)
If Netflix and other streaming services are the locks, Roku (NASDAQ:ROKU) serves as the key. Roku is benefiting from the movement towards streaming content. As more and more consumers cut the cord, they turn to Roku devices to help them access their streaming services.
The growth in Roku has had a snowball effect. As Roku continues to grow its active user base, it begins to attract more content providers. In addition to Netflix, Disney, Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN), the company has recently signed Comcast’s (NASDAQ:CMSCA) NBC Universal’s Peacock service. Plus, Peloton (NASDAQ:PTON) is also taking advantage of this opportunity to put its fitness app on the platform.
And if you think that all the noise about social media companies is just noise, think again. Roku saw an eye-popping 346% YOY increase in its performance advertising business as marketers began to take a closer look at their social media spending.
ROKU stock is up nearly 60% for the year as of this writing.
About Roku
Roku, Inc, together with its subsidiaries, operates a TV streaming platform in the United states and internationally. The company operates in two segments, Platform and Devices. Its streaming platform allows users to find and access TV shows, movies, news, sports, and others. The Platform segment offers digital advertising, including direct and programmatic video advertising, media and entertainment promotional spending, and related services; and streaming services distribution, such as subscription and transaction revenue shares, and sale of premium subscriptions and branded app buttons on remote controls.
Read More - Current Price
- $80.59
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $83.81 (4.0% Upside)
#7 - Best Buy (NYSE:BBY)
If you’re looking for a different way to play the entertainment sector, you could consider Best Buy (NYSE:BBY). The holidays will bring a new round of technology that consumers will use to entertain themselves. This will include video game consoles, streaming devices, and 5G smartphones. In fact, stores will have the Sony (NYSE:SNE) Playstation 5 and the Microsoft (NASDAQ:MSFT) Xbox available for Black Friday shoppers.
Somebody will have to make all this new holiday technology work together, and that’s what Best Buy does best. Best Buy was an essential business during the pandemic, and there’s no reason to believe it won’t be a major shopping destination both at brick-and-mortar locations and online.
At one point, BBY stock was up nearly 35% for the year. And even though the stock has come down a little bit, so has the rest of the market. That means that on a percentage basis, Best Buy remains a clear winner. And Best Buy pays out a solid, and it appears to be a soon-to-be-growing dividend.
About Best Buy
Best Buy Co, Inc engages in the retail of technology products in the United States, Canada, and international. Its stores provide computing and mobile phone products, such as desktops, notebooks, and peripherals; mobile phones comprising related mobile network carrier commissions; networking products; tablets covering e-readers; smartwatches; and consumer electronics consisting of digital imaging, health and fitness products, portable audio comprising headphones and portable speakers, and smart home products, as well as home theaters, which includes home theater accessories, soundbars, and televisions.
Read More - Current Price
- $85.55
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $101.06 (18.1% Upside)
The good news for the entertainment sector is that it’s highly logical to believe that the sector will rebound once the pandemic ends. And despite the rumblings of further lockdown measures in the United States, there will be an end.
But that doesn’t mean you have to wait until that day to take advantage of this sector. There are still some ways to make money in this sector if you have the courage to jump in. Remember, while a good movie will play on your emotions, your job as an investor is to take the emotion out of investing. That means it doesn’t matter how you feel about spending your winter months watching Netflix, and it still makes a compelling stock to buy.
The seven stocks in this presentation all look to post strong growth for the rest of the year. Some of this will be because of holiday shopping, and some will be because of the virus that will likely require many of us to stay closer to home.
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