The U.S. media industry is rapidly evolving, driven by the shift to digital platforms, mobile consumption, and subscription-based models. In 2023, global revenue for the entertainment and media (E&M) sector surged by 5%, hitting $2.80 trillion.
Given this backdrop, investors may want to keep an eye on high-growth media stocks like Netflix, Inc. (NFLX), The Walt Disney Company (DIS), and News Corporation (NWSA).
A recent Forbes survey revealed that 99% of U.S. households now subscribe to one or more streaming services, with people spending an average of three hours and nine minutes per day consuming digital media. Such figures highlight the dominance of streaming platforms and how they’ve become an integral part of modern entertainment consumption.
Moreover, the shift toward over-the-top (OTT) services is expected to accelerate this year, with 254.2 million Americans projected to use these platforms. Unlike traditional TV, OTT content offers unparalleled flexibility, allowing viewers to access their favorite shows and movies on mobile devices, desktops, tablets, and more.
As media consumption increasingly shifts online, media and entertainment revenues are set to surpass $3.4 trillion by 2028, growing at a CAGR of 3.9%. Further, propelled by the increasing internet penetration among consumers, the online entertainment market is expected to reach $674.56 billion over the next four years.
With these favorable trends in mind, let’s delve into the fundamentals of the above-mentioned high-growth media stocks in detail:
Netflix, Inc. (NFLX)
NFLX is a leading provider of entertainment services, offering a wide array of TV series, documentaries, feature films, and games across numerous genres and languages. The company enables its members to stream content on various internet-connected devices, including TVs, digital video players, set-top boxes, and mobile devices.
NFLX’s trailing-12-month EBIT margin of 23.82% is 158.6% higher than the industry average of 9.21%. Likewise, the stock’s trailing-12-month net income and levered FCF margins of 19.54% and 55.22% are considerably higher than their respective industry averages of 2.95% and 8%.
For the second quarter of fiscal 2024, which ended June 30, NFLX’s revenue increased 16.7% year-over-year to $9.56 billion. Its operating income rose 42.5% from the year-ago value to $2.60 billion, with an operating margin of 27.2%. Also, its net income and EPS amounted to $2.15 billion and $4.88, reflecting an increase of 44.3% and 48.3% year-over-year, respectively.
The consensus EPS estimate of $5.11 for the third quarter (ending September 2024) represents a 37.1% improvement year-over-year. The consensus revenue estimate of $9.77 billion for the current quarter represents a 14.3% increase from the same period last year. Also, it surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past three years, NFLX’s EBITDA and net income have grown at 13.1% and 17.3% CAGRs, respectively. Moreover, its EPS has grown at an 18.3% CAGR over the same period.
The stock has gained 58% over the past year to close the last trading session at $686.80.
NFLX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Sentiment. Among 53 stocks in the B-rated Internet industry, it is ranked #19. Click here to see the other ratings of NFLX for Growth, Value, Momentum, and Stability.
The Walt Disney Company (DIS)
DIS is a diversified worldwide entertainment company. It operates through three segments: Entertainment; Sports; and Experiences. It 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.
The stock’s trailing-12-month net income margin of 5.31% is 79.9% higher than the industry average of 2.95%. Further, its trailing-12-month ROCE and ROTA of 4.82% and 2.41% are 46.7% and 96.8% above the industry averages of 3.29% and 1.23%, respectively.
DIS’ total revenue rose 3.7% year-over-year to $23.16 billion for the third quarter that ended June 29, 2024. Its segment operating income increased 18.7% from the year-ago value to $4.23 billion. The company’s attributable net income and EPS came in at $2.62 billion and $1.44, compared to a net loss of $460 million and $0.25 per share in the prior year’s quarter.
Street expects DIS’ revenue and EPS for the fourth quarter (ending September 2024) to increase 5.5% and 35.9% year-over-year to $22.41 billion and $1.11, respectively. Moreover, the company topped the consensus EPS estimates in each of the trailing four quarters, which is promising.
In addition, the stock’s EBITDA and net income have grown at impressive CAGRs of 29.8% and 61.9% over the past three years, respectively. Similarly, its EPS has improved at a 62.4% CAGR over the same time frame.
DIS’ shares have gained 6.7% over the past year to close the last trading session at $89.30.
DIS’ stance is apparent in its POWR Ratings. It has a B grade for Growth and Sentiment. In the 12-stock Entertainment – Media Producers industry, it is ranked #7.
To see additional POWR Ratings of DIS for Value, Momentum, Stability, and Quality, click here.
News Corporation (NWSA)
NWSA is a global media and information services company that delivers engaging content and products to consumers and businesses. It operates through six segments: Digital Real Estate Services; Subscription Video Services; Dow Jones; Book Publishing; News Media; and Others.
The stock’s trailing-12-month asset turnover ratio of 0.60x is 20.5% higher than the industry average of 0.50x. Likewise, its 1.59% trailing-12-month ROTA is 29.9% above the industry average of 1.23%.
NWSA’s total revenues increased 5.9% year-over-year to $2.58 billion in the fourth quarter (ended June 30, 2024), while its total segment EBITDA rose 11.4% from the year-ago value to $380 million. The company’s adjusted net income amounted to $99 million, representing an increase of 25.3% from last year. Also, its adjusted EPS came in at $0.17, up 21.4% year-over-year.
Analysts expect NWSA’s revenue for the second quarter (ending December 2024) to increase 2.9% year-over-year to $2.66 billion. Its EPS estimate of $0.28 for the same period indicates a 5.8% growth from the prior year quarter. The company has an impressive surprise history, as it surpassed the consensus revenue estimates in three of the trailing four quarters.
Moreover, its revenue and EBITDA have increased at CAGRs of 2.5% and 5.6% over the past three years, respectively, while its EBIT grew at 9.1% CAGR in the same period.
Over the past year, the stock has surged 24.7%, closing the last trading session at $25.96.
It’s no surprise that NWSA has an overall rating of B, which equates to Buy in our proprietary rating system. It also has a B grade for Growth and is ranked first within the Entertainment - Media Producers industry.
In addition to the POWR Ratings we’ve stated above, we also have NWSA’s ratings for Value, Momentum, Stability, Sentiment, and Quality. Get all NWSA ratings here.
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NFLX shares were trading at $690.54 per share on Friday morning, up $3.74 (+0.54%). Year-to-date, NFLX has gained 41.83%, versus a 18.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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