More and more people are consuming online content and subscribing to at least one video streaming platform. This is because of the convenience and entertainment alternatives these digital platforms offer. Also, the growing work-from-home culture and rapid advancements are propelling the digital entertainment platforms' prospects.
Against this background, investors could consider fundamentally solid entertainment stocks such as The Walt Disney Company (DIS), Spotify Technology S.A. (SPOT), and Roku, Inc. (ROKU), which are captivating audiences around the world.
With technological evolution, consumers are actively moving away from their traditional cable services to digital online platforms for entertainment, streaming, and online gaming. As per the current trends in the U.S., consumer engagement in over-the-top (OTT) services will reach a staggering 254.2 million people in 2024.
This resulted in an expansion of subscription-based models, the growing popularity of streaming services, and content variety. Also, since the COVID-19 pandemic, consumer spending on streaming and online platforms has experienced continuous growth.
The wide variety of content features like on-demand videos, subscription choices, and personalized live-streaming shows around the globe boosted demand for online entertainment, propelling the overall entertainment industry’s prospects. The global online entertainment market is projected to grow to $261.23 billion by 2032, exhibiting a CAGR of 12.8%.
Further, every industry is adapting and being transformed through Generative AI, and the entertainment segment is no exception. The ongoing content boom driven by rapid streaming growth is being further accelerated by promising aspects of AI that deliver efficiency and productivity gains and power new ways of doing business.
The AI in the media & entertainment market is expected to expand at a CAGR of 25.7%, resulting in a market volume of $44.08 billion by 2028, driven by expanded AR and VR applications, AI-generated content creation, and advanced content personalization.
With these favorable trends in mind, let’s delve into the fundamentals of the three top digital entertainment platform stock choices mentioned above.
The Walt Disney Company (DIS)
DIS is a global entertainment company. The company operates in three segments: Entertainment; Sports; and Experiences. The company produces and distributes film and television video streaming content under banners like ABC Television Network, Disney, Freeform, FX, Fox, National Geographic, and Star brand television channels.
On November 14, DIS, Reliance Industries Limited, and Viacom 18 Media Private Limited obtained the necessary approvals by the regulatory authorities to form a joint venture to bring together the most iconic and engaging entertainment brands in India. At the closing of the transactions, the JV is to be controlled by RIL and owned 16.34% by RIL, 46.82% by Viacom18, and 36.84% by Disney.
The strategic collaboration will expand DIS's operations in a high-potential market and remarkably transform the Indian media and entertainment industry. It will ensure unparalleled content choices at affordable prices for Indian viewers.
For the fourth quarter that ended September 28, 2024, DIS’ total revenue increased 6.3% year-over-year to $22.57 billion. Its total segment operating income grew 22.8% from the year-ago value to $3.65 billion. Also, net income attributable to DIS was $460 million, up 74.2% from the prior-year quarter. Its adjusted EPS rose 39 year-over-year to $1.14.
Furthermore, the company’s free cash flow increased 17.5% from the prior year’s period to $4.03 billion. Its cash and cash equivalents and total assets stood at $6 billion and $196.22 billion as of September 28, 2024, respectively.
For the fiscal year 2025, DIS expects high-single-digit adjusted EPS growth from the prior year. It also expects double-digit percentage growth in the entertainment segment operating income compared to fiscal 2024.
Analysts expect DIS’ revenue for the first quarter (ending December 2024) to grow 4.9% year-over-year to $24.69 billion. The company’s EPS is expected to increase 17.5% year-over-year to $1.43 for the same period. Moreover, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
Shares of DIS have surged 20.2% over the past month and 21.9% over the past year to close the last trading session at $116.
DIS’ bright prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Sentiment. Within the Entertainment – Media Producers industry, DIS is ranked #8 out of 13 stocks.
Click here to access additional ratings of DIS for Quality, Value, Momentum, Growth, and Stability.
Spotify Technology S.A. (SPOT)
Headquartered in Luxembourg, SPOT offers audio streaming subscription services internationally. The company operates through Premium and Ad-Supported segments. It provides unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
SPOT’s trailing 12-month net income margin of 4.64% is 31.5% higher than the industry average of 3.53%. Also, the stock’s trailing-12-month ROCE and ROTA of 20.70% and 6.64% are significantly higher than the industry averages of 4.14% and 1.63%, respectively.
For the third quarter that ended September 30, 2024, SPOT’s revenue increased 18.8% year-over-year to €3.99 billion ($4.18 billion). The company’s gross profit grew 40.1% from the year-ago value to €1.24 billion ($1.30 billion). Its operating income of €454 million ($476.11 million) indicates significant growth from the prior-year quarter.
In addition, net income attributable to owners of the parent came in at €300 million ($314.61 million) or €1.45, up 361.5% and 339.4% year-over-year, respectively.
Street expects SPOT’s revenue and EPS for the first quarter (ending March 2025) to increase 12.9% and 81.3% year-over-year to $4.39 billion and $1.88, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 14.7% and 56.8% from the prior year to $18.61 billion and $9.56.
Shares of SPOT have surged 55.1% over the past six months and 163% over the past year to close the last trading session at $481.38.
SPOT’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
SPOT has an A grade for Growth and a B grade for Sentiment and Quality. It is ranked #2 out of 4 stocks in the Entertainment – Radio industry.
In addition to the POWR Ratings we’ve stated above, we also have SPOT ratings for Momentum, Value, and Stability. Get all SPOT ratings here.
Roku, Inc. (ROKU)
ROKU operates a TV streaming platform internationally, allowing users to find and access TV shows, movies, news, sports, and others. The company operates in the Platform and Devices segments. Its Platform segment offers digital advertising and streaming services distribution, whereas its Devices segment provides sales of streaming players.
On October 9. ROKU and Maplebear Inc. (CART) expand their advertising partnership with new shoppable formats and targeting to make TV moments shoppable for high-intent customers. This partnership will offer wide-scale and valuable insights required to connect with relevant audiences for consumer-packaged goods (CPG) advertisers.
The interactive ad formats, enhanced targeting capabilities, and closed-loop measurement will allow brands to get more from their advertising efforts and encourage effortless and personalized shopping experiences for consumers.
For the third quarter, which ended September 30, 2024, ROKU's total net revenue increased by 16.5% year-over-year to $1.06 billion. Its non-GAAP total gross profit grew 10.4% from the prior year’s period to $480.07 million. The company’s adjusted EBITDA came in at $98.20 million, reflecting an increase of 126.1% year-over-year.
Furthermore, the company’s free cash flow rose 56.1% from the year-ago value to $157.35 million.
Buoyed by its financial performance, the company provided a financial outlook for the fourth quarter. ROKU projects a total net revenue of $1.14 billion, growing 16% year-over-year. The company estimates a total gross profit of $465 million and an adjusted EBITDA of $30 million.
Analysts expect ROKU’s revenue for the fourth quarter (ending December 2024) to increase 15.9% year-over-year to $1.14 billion. For the fiscal year 2024, the company’s revenue is expected to grow 16.2% year-over-year to $4.05 billion. Also, ROKY has topped the consensus revenue estimates in all four trailing quarters.
ROKU’s shares have gained 20.9% over the past six months to close the last trading session at $68.22.
ROKU’s sound fundamentals are reflected in its POWR Ratings. Within the Consumer Goods industry, ROKU is ranked #44 among the 55 stocks.
Click here to access all the ROKU POWR Ratings.
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DIS shares were trading at $115.89 per share on Tuesday morning, down $0.11 (-0.09%). Year-to-date, DIS has gained 28.95%, versus a 27.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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