Netflix (NASDAQ: NFLX) is still the dominant force amongst streaming equities, but as the Roundhill Streaming Services & Technology ETF (NYSE ARCA: SUBZ) proves, this an expanding universe with more opportunities than many investors may realize.
In fact, the actively managed SUBZ, which debuted in February, could be an ideal way for investors to access the fast-growing streaming entertainment arena while reducing dependence on Netflix. That could be an advisable strategy because, as some analysts point out, streaming is an increasingly competitive industry and Netflix is already richly valued.
“We still believe Netflix is substantially overvalued. The firm has performed exceptionally well in recent years in terms of subscriber growth, but we see increasing hurdles to that growth. Competition for streaming audiences is increasingly intense as Amazon, Disney, WarnerMedia/Discovery, and even ViacomCBS,” according to Morningstar research.
Sizing Up SUBZ
Netflix is often viewed as the original streaming company. While it’s still the leader, it faces credible competition from others, namely Disney’s (NYSE: DIS) Disney+. Likewise, Amazon’s (NASDAQ: AMZN) recent acquisition of MGM shows its commitment to boosting its streaming offerings. Those three stocks combine for over 10% of the SUBZ roster, according to issuer data.
“We’ve long held that the traditional media firms will ultimately prove adept at competing with Netflix. Existing content libraries, franchises that can be extended into new programming, and existing customer relationships provide the elements needed to grow streaming businesses,” notes Morningstar.
In addition to Disney, traditional media firms found among SUBZ components include ViacomCBS (NASDAQ: VIAC). That company has a deep content library, is positioned to benefit as more Americans return to movie theaters, relaunched its Paramount+ streaming offering a few months ago, and is displaying a willingness to invest in new content. Morningstar said the CBS parent is its favorite media stock. The name represents over 3% of the SUBZ lineup.
ViacomCBS has other favorable attributes, including its often overlooked though still fast-growing Pluto streaming service. Discovery (NASDAQ: DISCA), 2.77% of SUBZ, is another streaming name Morningstar likes.
“The launch of Discovery+ earlier this year leaves the firm a bit late to the streaming game, but it now has an outlet for fans who don’t want traditional television service. The plan to join forces with WarnerMedia should provide opportunities to accelerate streaming adoption as the new firm crafts bundled offerings,” according to the research firm.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.