Investing in Entertainment Stocks

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Updated: March 17, 2021, 3:39 p.m.

As the global middle class continues to expand, demand for entertainment products and services continues to rise at an attractive pace. Demand for entertainment content has also historically been relatively resilient, even during periods of economic uncertainty and downturn. Investors may want to look into entertainment stocks as a way to capitalize on this growth and persistent demand.

Entertainment stocks are those of publicly traded companies that derive a substantial portion of their business from the entertainment industry. These companies may operate in other industries and sectors, too, but entertainment stands out as a core part of their operations. Investors who take a buy-and-hold approach to category leaders in the space stand a good chance of seeing strong returns over time.

Image source: Getty Images

Top entertainment stocks

If you’re seeking investment opportunities in the entertainment space or just looking to get a better understanding of the industry, these companies are worth keeping an eye on:

1. The Walt Disney Company

Disney has a collection of entertainment franchises and a library of classic film and television series that trounces those of every other company under the sun. The company has also shown the value of its properties amid the coronavirus pandemic with explosive growth for the company’s Disney+ streaming service.

Despite social distancing conditions and shutdowns for the company’s theme parks and resorts, the company has persevered. Disney’s resilience is even more impressive considering that the pandemic also crushed the company’s theatrical release business and created major disruptions in the TV segment due to delays and cancellations for sporting events, television series, and other content.

Incredible growth for Disney+ has highlighted the value of the company’s franchises, and the company’s other business segments that have been hit hard by the pandemic should eventually see recovery. With Star Wars, the Marvel Cinematic Universe, the Pixar catalog, and a long list of others, the House of Mouse has too many valuable entertainment properties to mention in the space of this article. Disney is a great company with valuable assets that has shown it can adapt and thrive amid changes in the entertainment landscape.

2. Activision Blizzard

The global video game industry has enjoyed tremendous growth over the past decade, and Activision Blizzard has been one of the medium’s biggest leaders and beneficiaries. The publisher is responsible for hit franchises, including Call of Duty, World of Warcraft, and Candy Crush Saga, and it’s in a great position to continue benefiting from the ongoing growth of interactive entertainment.

Activision Blizzard is still in the early stages of capitalizing on the massive global audience for mobile games. The company’s first major foray into bringing its hit Call of Duty series to mobile devices was a huge success, and it looks like the business will be focusing on bringing more of its hit franchises to smartphones and tablets to serve the rapidly expanding audience there.

The company has a proven track record of success when it comes to developing and marketing new video games. Even more important for today’s video game market, it has also shown that it’s capable of sustaining its hit properties and turning them into long-term performance drivers.

3. AT&T

AT&T combines strengths in the telecommunications sector with a strong position in the entertainment industry via its Time Warner business segment. That doesn’t mean everything has been going well for the company, however.

HBO Max service got off to a relatively slow start despite being positioned as the company’s new flagship streaming service, and its weak showing in streaming, along with big subscriber losses at the DIRECTV segment, resulted in AT&T stock underperforming the market in recent years. On the other hand, the company’s core mobile wireless business continues to look solid, and AT&T shares trade at safe levels that leave room for long-term growth.

The company’s Warner entertainment segment still has a fantastic library of content and franchises, and it should be able to find its footing in the new streaming-focused media environment. AT&T also pays a substantial dividend, offering one of the best yields (dividend paid as a percent of share price) for a reasonably sturdy company in the telecommunications and media sector, so shareholders can collect regular checks while waiting for the turnaround to materialize.

Image Source: Getty Images

4. Roku

Roku is spearheading the cord-cutting revolution. The company’s streaming hardware is widely integrated in smart TVs, and its leading position in this category allows it to function as a distributor for other companies’ streaming content and services. The business got its start selling set-top streaming boxes, but it’s evolved far beyond that focus, and it has a promising long-term growth outlook.

In addition to generating ad revenue from other streaming services that are accessible through its application, the company operates the Roku Channel — a free, advertising-supported streaming service accessible through its platform. The company can serve ads to viewers that, due to their targeted nature, are significantly more valuable than those distributed through cable or other streaming venues. Besides its hardware and advertising revenues, Roku licenses its smart television operating system software.

Roku is bringing users into its ecosystem at an impressive rate and building a large user base could pave the way for big profits down the line. Roku could also make the push into producing its own original films and television series, leveraging its large user base, strength in data analytics, and advertising expertise to create new growth avenues. Roku holds leading positions at core junctions of the streaming market and has multiple avenues to continue posting strong growth.

5. Tencent Holdings

Tencent is China’s biggest technology and media conglomerate. The company stands as the world’s largest video game publisher by revenue, and it owns huge franchises, including League of Legends, Honor of Kings, and Clash of Clans. The company also benefits from having substantial stakes in many leading gaming companies, including Fortnite creator Epic Games. Tencent will likely continue to make acquisitions that help shore up its leadership position in interactive entertainment.

Video games aren’t the only corner of the entertainment world that Tencent has a hand in. The company has its own movie production studio and a wide range of investments across the film and music industries. If that weren’t enough, it also owns stakes in social media platforms, including Snap, Huya, and Reddit.

Tencent has a diverse collection of resources that are growth drivers in their own right and can add to the strengths of the company’s entertainment businesses. It also owns WeChat — a social media platform that functions as a hub for everything from messaging to sharing media and to e-commerce and payments. WeChat has roughly 1 billion active users, and the app helps Tencent monetize its own content and generate revenue from third parties.

6. FuboTV

FuboTV is focused on bringing premium sports programming into the world of streaming. Live sports remains one of the biggest draws for cable and satellite television packages, but it’s likely that consumption of sports content will also migrate to streaming, and Fubo wants to spearhead that transition.

Rather than try to replicate the pared-down, skinny bundle-style offerings from some competing services, Fubo is concentrating on serving the sports enthusiast market. The company aims to reach customers who are willing to pay a premium for expansive content offerings, and its sports-focused streaming platform is bringing users on board at a rapid clip, even with basic plans starting at roughly $65 per month.

FuboTV is still a relatively young company, and the stock probably won’t be a great fit for investors who don’t have high risk tolerance. It does have some other intriguing paths to growth, however. Fubo is trying to use its core streaming service as a springboard for success in the online sports betting industry. Online sports betting is a market with huge room for growth, and integrating betting platform offerings with its streaming packages could be a great way to reach a highly engaged target audience.

Related Investing Topics

What makes a good entertainment company investment?

Many companies in the entertainment sector operate hit-driven businesses. That means companies in the space can see their outlooks change quickly, and entertainment stocks tend to be risky compared to the market at large.

You’ll want to pay attention to metrics, including sales and earnings growth, as well as industry-specific indicators such as subscriber growth, revenue per user, and how well key releases and service updates are received. For companies with businesses outside the entertainment space, this also means keeping track of their other ventures and overall performance. It’s important to keep in mind that you’re investing in the whole company, not just its entertainment component.

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