The Oscar season is upon us. The 94th Academy Awards (this coming Sunday) sees the usual race to catch up on nominated movies and documentaries. Entertainment stocks will benefit from this wave. These stocks have already been doing well as the global middle class expands and sees a rise in purchasing power. As per the 2021 Credit Suisse Report, the global middle class tripled in size from 507 million in 2000 to 1.7 billion in mid-2020.
However, the paradigm of entertainment has drastically shifted in the post-pandemic era. Today, large cinema production and distribution houses face unparalleled competition from streaming platforms.
OTT Streaming Services
Easier access to the internet and the proliferation of connected devices has ushered in a new era of entertainment: OTT streaming ("over-the-top"). There are 4.9 billion internet users worldwide, of which a large percentage belongs to the 25-34 age group. There are over 12.3 billion cellular IoT devices worldwide, which allowed people to consume vast amounts of content while they spent their time at home during the lockdowns. Netflix gained 16 million new users in Q1 2020.
The uncertainty around Covid-19 means that top production houses will continue to release their movies on these platforms. The Global OTT devices and services market is expected to reach $217.5 billion by 2026.
Many major production companies have their own platforms now. Companies like Netflix, Apple, Disney and Amazon are highly popular in the UK for example. However, Netflix and Amazon don’t pay dividends. On the other hand, AT&T is very popular in the US, with an annual dividend yield of 8.95%.
The Outlook for OTT Stocks
Netflix Inc.
While Netflix doesn’t pay dividends, it’s a large-cap growth stock suitable for investors looking for long-term capital gains. As of March 9, 2022, Netflix’s market cap stood at $159 billion. Its stock price rose 67% in 2020 and 17% in 2021 as economies reopened and market competition increased. The company’s large subscriber base and multi-lingual content give it a competitive edge. Netflix houses some of the top Oscar nominated movies including Don’t Look Up, The Lost Daughter and The Power of the Dog which is up for 11 Oscars.
Netflix’s EPS grew from $0.43 in 2016 to $6.08 in 2020.
One reason for not issuing dividends yet is the requirement for a huge amount of quality original content, for which it needs significant capital. With an already high debt-load, it's unlikely that Netflix will pay out dividends anytime soon.
Walt Disney Co. (DIS)
Disney launched its streaming service, Disney+, in the US in 2019. The streaming service grew explosively in 2020, due to the pandemic. However, the company added just 2.1 million subscribers in Q4 2021, with the effects of the pandemic fading. Several top-notch content pieces are slated for release on the platform, including animated specials.
But Disney is more than just a streaming platform. It is also a cinema producer. In 2022, Disney’s live-action and animated movies are top Oscar contenders. Disney+ hit Cruella is up for Best Costume Design. The critically acclaimed animated movie, Encanto, is nominated for Best Animated Feature Film, Best Original Score, and Best Original Song. Disney has much to be proud of with two more nominations in this category, including Luca and Raya and the Last Dragon.
With increasing vaccination rates, Disney’s movie releases and theme parks are expected to attract significant traffic.
Woodseer is forecasting a cash dividend of $0.50 on June 22, 2022, with ex-date July 1, 2022.
Apple (AAPL)
Apple TV+ still needs to make headway in this competitive market. But, recent reports suggest that it could reach 284.2 million subscribers by 2026, a huge rise from its less than 20 million customer base as of March 2022. Tim Cook is on cloud nine this year, with Apple Original Films receiving 6 Oscar nominations. Joel Coen’s The Tragedy of Macbeth earned 3 nominations, including Best Actor in a Leading Role (Denzel Washington). The other favourite contender is Coda, nominated for Best Picture and Best Supporting Actor (Troy Kotsur).
The tech giant was the first US company to reach a $3 trillion market cap in 2022. Apple stocks gained an average of 67% between 2019 and 2021, much higher than its historical average of less than 30%.
There are many reasons to hold Apple stock, including the launch of 5G-capable iPhones, high demand for its products and services, and huge opportunities in the metaverse and autonomous vehicles. We are forecasting the next dividend at $0.235 on April 27, 2022, with ex-div date of May 6, 2022.
The Outlook for Cinema and Media Stocks
Part of the consumer discretionary category, cinema stocks are likely to surge with economic recovery and growth, when consumers move back to discretionary stocks. Moreover, major cinema production houses now have OTT platforms to showcase their movies, regardless of virus uncertainties.
Media companies with a strong foothold in digital platforms are expanding their consumer base. There have been several mergers and acquisitions in the past few years, between legacy businesses and digital platforms. Media companies are under pressure to provide direct-to-consumer (DTC) services, including radio producers.
Viacom CBS
Viacom has a huge market share and is one of the 4 major broadcast networks in the US. Its cable networks, like MTV, Comedy Central and Showtime, have diverse audiences. In 2021, Viacom rebranded its DTC efforts to combine CBS, Paramount and Viacom content into one streaming service, Paramount+. In Q4 2021, its global streaming subscribers went up by 56.1 million YoY, and revenue increased 16.4%. The management expects DTC revenue to increase to more than $9 billion by 2024, from $3 billion in 2021.
Viacom has been seen as a value stock for many years, and the company is investing in itself to attract subscribers through good content. This is why it is not expected to pay a dividend anytime soon.
Tencent Holdings Ltd.
The name Tencent might be synonymous with video games, but the company has diverse businesses that are all growth drivers. It owns WeChat, China’s own multi-purpose app, with over 1.26 billion monthly users in Q3 2021. The platform helps Tencent monetise its content and generate revenues from third parties. Tencent’s revenue increased 13% in Q3 2021 to reach $22 billion.
The new tech regulatory crackdown in China, however, might put pressure on the stock in the near term. Tencent forecasts that the advertising industry will rebase during 2022, before returning to a growth path. Online ad revenues accounted for 16% of the company’s total profits in Q3 2021. The launch of “League of Legends: Wild Rift” in China could support further growth.
We are forecasting a dividend of HKD 1.80 (approximately $0.23) for the first time in 2022 on March 23, 2022, ex-div date of May 24, 2022.
Woodseer Approach to Dividend Forecasting
The entertainment industry is rapidly evolving. Companies are constantly under pressure to adjust to changing consumer needs and recessionary pressures worldwide.
Woodseer Global, with our hybrid analyst+algorithm approach, helps professional investors, fund managers, custodians and hedge funds to accurately forecast dividends for media and entertainment stocks. Contact us to learn more.