The content-streaming industry has been booming since the onset of the COVID-19 pandemic, thanks to sustained demand due to remote lifestyles, rising adoption of internet-enabled entertainment platforms, and increasing smartphone and internet penetration worldwide. Furthermore, the integration of advanced technologies, including 3-D video platforms, 5G, virtual reality, artificial intelligence, and cloud technology, is expected to drive immense growth for the industry. According to a report by The Business Research Company, the global content-streaming market is projected to reach $227.32 billion by 2026, growing at a 16.6% CAGR. The United States is considered a key market for online streaming services.
As chief investment officer of ARK Invest, Cathie Wood is known for her outstanding investment strategies. Over the past five years, ARK Innovation ETF (ARKK) has gained 119.2% and outperformed the broader market. Furthermore, Wood is reshuffling stocks in her ETFs to withstand recent market turmoil. The top streaming stocks picked by Wood provide great investment opportunities because they possess significant upside potential.
Wall Street analysts expect Wood’s content-streaming picks Roku, Inc. (ROKU) and Spotify Technology S.A. (SPOT) to rally handsomely in the coming months.
Roku, Inc. (ROKU)
ROKU operates a TV streaming platform. The company operates through two segments: Platform; and Player. It offers access to various movies, TV episodes, and others. In addition, it provides digital and video advertising, content distribution, subscription, billing services, and sells smart TVs under the Roku TV name. The company also offers streaming players, audio products, and accessories. The stock has 6.71% ARK ownership.
Earlier this month, ROKU announced the multi-year extension of its distribution agreement with Amazon. The customers can continue to access the Prime Video and IMDb TV apps on the Roku devices. This extension of the agreement is expected to boost the company’s profitability.
In March, ROKU introduced Roku OS 11, which enhances user personalization with the launch of Roku Photo Streams, content discovery menu options, and audio settings. The new Roku Photo Streams feature enables customers to display and share photo albums through Roku devices. This is expected to expand the company’s customer reach and boost revenue streams.
In the fiscal 2021 fourth quarter ended December 31, 2021, ROKU's total net revenue increased 33.2% year-over-year to $865.33 million. The company's cash and cash equivalents rose 96.3% year-over-year to $2.15 billion for fiscal 2021 (ended December 31). Its total current assets increased 79.9% from the prior year to $3.05 billion. ROKU’s net cash provided by operating activities grew 53.9% from the last year to $228.08 million, while net cash provided by financing activities rose 97.1% year-over-year to $1 billion.
Analysts expect ROKU's revenue for fiscal 2022 to come in at $3.72 billion, representing a 34.6% rise year-over-year. ROKU has an impressive earnings surprise history as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
ROKU plunged 76.4% over the past six months. However, the 12-month median price target of $181.40 indicates an 82.2% potential upside from yesterday’s closing price of $99.55. The price targets range from a low of $95.00 to a high of $305.00. Of the 20 Wall Street analysts that rated ROKU, 16 rated it Buy, one rated it Hold, while three rated it Sell.
Spotify Technology S.A. (SPOT)
Headquartered in Luxembourg, Luxembourg, SPOT provides streaming services worldwide. The company operates through two segments: Premium; and Ad-Supported segments. It offers online and offline streaming access to its catalog of music and podcasts to its subscribers. In addition, it offers sales, marketing, contract research, and customer support services. Its platform includes more than 406 million monthly active users and 180 million premium subscribers. SPOT has 1.7% ARK ownership.
Last November, SPOT entered a definitive agreement to acquire Findaway, a global leader in digital audiobook distribution. “The acquisition of Findaway will accelerate Spotify’s presence in the audiobook space. We’re excited to combine Findaway’s team, best in class technology platform, and robust audiobook catalog, with Spotify’s expertise to revolutionize the audiobook space as we did with music and podcasts,” stated Gustav Söderström, SPOT’s Chief Research & Development Officer.
SPOT’s total revenue increased 24.3% year-over-year to €2.69 billion ($2.92 billion) for the fourth quarter ended December 31, 2021. Its gross profit improved 23.8% year-over-year to €712 million ($773.18 million). For the fiscal year 2021 ended December 31, the company’s cash and cash equivalents increased 138.4% year-over-year to €2.74 billion ($2.98 billion), while its total current assets increased 84.8% from the prior year to €4.37 billion ($4.75 billion).
The consensus revenue estimate of $12.63 billion for fiscal 2022 represents a growth of 18.3% year-over-year. Street expects the company's EPS for fiscal 2023 to increase 2,675% year-over-year to $1.11. It is no surprise that it has surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock slumped 51.8% year-to-date. However, the 12-month median price target of $224.26 indicates a 99.1% potential upside from yesterday’s closing price of $112.62. The price targets range from a low of $140.00 to a high of $300.00. Of the 24 Wall Street analysts that rated SPOT, 15 rated it Buy, eight rated it Hold, while one rated it Sell.
ROKU shares were trading at $97.40 per share on Friday afternoon, down $2.15 (-2.16%). Year-to-date, ROKU has declined -57.32%, versus a -9.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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