Entertainment is more important than ever in the COVID era and evidence suggests a new influx of retail investors are trading the companies that are keeping them entertained.
There are all robust companies with global reach, strong balance sheets and/or competitive advantage and positive free cash flow. Timing your trade in stocks of these companies is possibly the biggest obstacle given the huge gains year-to-date.
Amazon (NASDAQ: AMZN)
Despite some questions about its questionable working practises, Amazon is thriving. Just a heads up, the Amazon stock has tripled in value over the past three years, with an annual revenue that doubled. Not only is it dominating the United States’ E-commerce business with over 150 million Prime subscribers – $119 a year – the biggest part of its revenue comes from Amazon Web Services, a cloud computing offering that has become one of the leaders of the market along with Google Cloud Platform and Microsoft Azure.
NOTE: that the stock is $3’450 at the time of writing so you may have to buy fractional shares if you wish to take a smaller postion.
Alphabet (NASDAQ: GOOG)
You may not have heard of Alphabet, but you surely are familiar with its products: it is the parent company of Google, which oversees Google Ads, YouTube, Google Chrome, Android, Google Maps and so on. Shall we talk about search engines market share? They own 90% of it.
But by owning YouTube and Google Play subscriptions - Google plays an increasing role in modern entertainment. It just so happens YouTube is the #1 video platform and Android is the #1 mobile operating system. It's a mega cap money printing machine with $150 billion in expected revenues in 2020 and $200 billion in 2021.
Netflix (NASDAQ: NFLX)
With over 180 million subscribers around the world and a revenue on the way to exceed $24 billion in revenue in 2020, Netflix is one of the leaders of video streaming. We shall also observe that less than half of their subscribers are located in the US, which could become an even smaller percentage as some countries such as India or Brazil expand their Internet infrastructure, making it more widely available.
Netflix has remained a strong consumer favourite over the many competitors (Prime Video, Apple and Disney) and always kept innovating. Finally, we could expect them to be bought by a bigger company with a good cash reserve as for example Apple or Amazon. The potential upside of such a transaction should to be considered.
Spotify (NYSE: SPOT)
With over 138 million paid subscribers and over 299 million users on the platform at the time of writing, Spotify is the leader in paid music streaming with 35% of the market share in 2019, while it is only 19% for Apple and 6% for YouTube (Statista, 2020).
Since they could not get better terms with music right holders, they are now aggressively moving into podcasts: a product where the fixed costs do not change depending on the number of listeners. The great hope from podcasts is that is will change the dynamics in Spotify’s profitability in the coming years, bolstered by partnerships with celebrities such as Kim Kardashian West and Joe Rogan.
Disney (NYSE: DIS)
If when you hear the worse "Disney" you might think about the Magic Kingdom theme park or famous movies like Snow White or the Lion King but that misses the bigger picture.
The Walt Disney Company’s holdings include ESPN, Fox, Marvel, Lucasfilm (Star Wars), National Geographic and many others. It has a strong image known world-wide and a massive reach that gives them the ability to connect with people of all ages. Revenues from its parks and TV sports suffered heavily due to Covid-19 but the timing for introducing its new Disney+ streaming services was perfect and goes some way to offset the damage.
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