Rapid technological transformations have made access to the internet and digital platforms extremely convenient. This has resulted in swiftly surging content consumption and social media prevalence among consumers, paving new growth opportunities for the entertainment industry.

Given the industry’s backdrop, investors could consider fundamentally sound entertainment stocks Netflix, Inc. (NFLX), The Walt Disney Company (DIS), and Roku, Inc. (ROKU) to watch for now.

The rapidly growing demand for digital platforms for social media, online shopping, online entertainment, and online education has fueled the Internet services market significantly. The global internet service market is projected to reach $766.08 billion by 2032, exhibiting growth at a CAGR of 4.4%.

The market is benefiting from the widespread internet usage coupled with the majority of companies moving toward digital platforms to cater to consumer needs and the growing investments in the development of 5G technologies.

Meanwhile, a recent survey by Forbes found that 99% of all U.S. households hold membership and pay for at least one or more streaming services. Also, it was revealed that people dedicate around three hours and nine minutes each day to streaming digital media. These stats underscore the role of streaming services and current entertainment and information consumption.

Further, the value of the media and entertainment market reached $2.83 trillion last year and is expected to reach $3.40 trillion by the end of 2028. And propelled by the increasing internet penetration among consumers, the online entertainment market is expected to grow to $674.56 billion in 2028 at a CAGR of 14.9%, where trends like online entertainment content hubs will navigate the market growth.

With these favorable trends in mind, let’s delve into the fundamentals of the three top entertainment stock choices mentioned above.

Netflix, Inc. (NFLX)

NFLX is an entertainment services provider. The company offers TV series, documentaries, feature films, and games across various genres and languages. It also provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, TV set-top boxes, and mobile devices.

NFLX’s trailing-12-month EBIT margin and net income margin of 23.82% and 19.54% are 151.4 % and 498.3% higher than the respective industry averages of 9.47% and 3.27%. Likewise, the stock’s trailing-12-month levered FCF margin of 55.22% is considerably higher than the industry average of 8.03%.

During the second quarter, which ended June 30, 2024, NFLX’s revenues increased 16.7% year-over-year to $9.56 billion. Its operating income grew 42.5% year-over-year to $2.60 billion. The company’s net income and EPS came in at $2.15 billion and $4.88, up 44.3% and 48.3% from the prior year’s quarter, respectively.

In addition, the company’s total assets stood at $49.10 billion as of June 30, 2024, compared to $48.73 billion as of December 31, 2023.

Analysts expect NFLX’s revenue for the third quarter (ending September 2024) to grow 14.3% year-over-year to $9.77 billion. The company’s EPS is expected to increase 37.1% year-over-year to $5.11 for the same period. Moreover, the company surpassed the consensus revenue estimates in all of the trailing four quarters.

Shares of NFLX have surged 11.4% over the past six months and 49.4% over the past year to close the last trading session at $665.77.

NFLX’s 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 an A grade for Quality and a B grade for Sentiment. Within the B-rated Internet industry, NFLX is ranked #20 out of 52 stocks.

Click here to access additional ratings of NFLX for Value, Momentum, Growth, and Stability.

The Walt Disney Company (DIS)

DIS operates as an entertainment company globally. The company operates in 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.

DIS’ trailing-12-month net income margin of 5.31% is 62.4% higher than the industry average of 3.27%. Further, the stock’s trailing-12-month EBIT margin and levered FCF margin of 12.93% and 9.19% are 36.4% and 14.4% higher than the industry averages of 9.47% and 8.03%, respectively.

DIS’ total revenue rose 3.7% year-over-year to $23.16 billion for the third quarter that ended June 29, 2024. Its total segment operating income increased 18.7% from the year-ago value to $4.23 billion. Also, net income attributable to DIS was $2.62 billion, against a net loss of $460 million during the prior year's quarter.

Furthermore, the company’s cash and cash equivalents and total assets stood at $5.95 billion and $197.77 billion as of June 29, 2024, respectively.

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. Also, the company topped the consensus EPS estimate in all four trailing quarters, which is remarkable.

Shares of DIS have surged 8.6% over the past year to close the last trading session at $87.94.

DIS’ POWR Ratings reflect its sound fundamentals. DIS has a B grade for Sentiment and Growth. It is ranked #5 out of 12 stocks in the Entertainment – Media Producers industry.

In addition to the POWR Ratings we’ve stated above, we also have DIS ratings for Momentum, Quality, Value, and Stability. Get all DIS ratings here.

Roku, Inc. (ROKU)

ROKU operates a TV streaming platform internationally. The company operates through two segments, Platform; and Devices. The company’s streaming platform enables users to find and access TV shows, movies, news, sports, and others.

On August 1, ROKU announced the adoption of Unified ID 2.0 (UID2), which is a leading identity solution available across its premium streaming inventory. With UID2, Roku advertisers can implement more precise targeting and a secure means to facilitate data collaboration powered by automation through Roku Exchange.

UID2 will allow advertisers to deliver more personalized ad experiences, and the integration will enhance advertising targeting and performance.

On June 12, ROKU launched Roku Exchange, a TV streaming-first advertising technology solution connecting ad inventory with advertiser demand. This technology offers marketers access to Roku Media, allowing them to drive reach and performance through the ad-buying platform of their choice.

For the second quarter ended on June 30, 2024, ROKU’s total net revenue increased 14.3% year-over-year to $968.18 million. Its total gross profit rose 12.3% from the prior year’s quarter to $424.70 million. The company’s adjusted EBITDA and free cash flow stood at $43.64 million and $317.92 million for the quarter, respectively.

In addition, the company’s cash and cash equivalents and total assets totaled $2.06 billion and $4.10 billion as of June 30, 2024.

Reflecting upon the company’s performance, the company has provided the following outlook for the third quarter. ROKU expects total net revenue of $1.01 billion, growing at 11% year-over-year. Its total gross profit is expected to be $440 million, and adjusted EBITDA is expected to be $45 million.

Analysts expect ROKU’s revenue for the third quarter (ending September 2024) to increase 11.2% year-over-year to $1.01 billion. For the fiscal year 2024, the company’s revenue is expected to grow 13.9% year-over-year to $3.97 billion. Also, ROKY has topped the consensus revenue estimates in each of the trailing four quarters.

ROKU’s shares have gained 21.8% over the past month and 2.7% over the past six months to close the last trading session at $64.37.

ROKU’s sound fundamentals are reflected in its POWR Ratings. The stock has a B grade for Growth. Within the A-rated Consumer Goods industry, ROKU is ranked #40 among the 52 stocks.

In addition to the POWR Ratings we’ve stated above, we also have ROKU ratings for Stability, Momentum, Value, Quality, and Sentiment. Get all ROKU ratings here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

NFLX shares were trading at $675.42 per share on Monday afternoon, up $9.65 (+1.45%). Year-to-date, NFLX has gained 38.72%, versus a 15.69% rise in the benchmark S&P 500 index during the same period.

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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