Leading streaming giant, Netflix, Inc. NFLX posted a compelling third quarter that no one saw coming. But, this has encouraged firms to jack up their price targets for Netflix, while its peers remain pretty expensive.
This makes it difficult for smaller investors to afford large stakes in such companies having higher priced shares. Consequently, if you have a penchant for media stocks and at the same time don’t want to burn a hole in your pocket, buy low-priced companies with solid growth potential.
Impressive Q3 for Netflix
Shares of Netflix jumped 19% on Oct 18, courtesy of the stellar earnings beat in the third quarter. The company posted earnings per share of 12 cents in the quarter, beating the Zacks Consensus Estimate of 6 cents. Revenues of $2.29 billion also trumped the consensus estimate of $2.28 billion.
The video streaming giant’s total revenues climbed 31.7% year over year, led by gains in both International and Domestic Streaming. While International Streaming revenues skyrocketed 65.1% year over year to $853.5 million, Domestic Streaming revenues soared 22.6% to $1,304.3 million from the year-ago quarter.
Upbeat subscriber growth mainly drove the company’s third-quarter results. Netflix recorded 3.57 million new members in the quarter, reaching the total to around 86.7 million across the globe. To top it, Netflix expects to add another 5.2 million global members in the fourth quarter (read more: Netflix Gains on Solid Q3 Earnings, Subscriber Growth).
Price Goals Climb for Netflix
The dot-com darling’s grand third-quarter show came just when it was required the most. Analysts who were lowering their price targets and downgrading the stock post its dismal second quarter, have now adopted a different stance.
Old Target ($)
New Target ($)
All these imply that Netflix is a pricey pick for now. And why won’t Netflix see a stock price hike? Its solid third-quarter performance helped the company record its largest daily increase since Jul 31, 2015. On the other hand, its shares had plummeted 13% the day after its second-quarter results missed its own guidance.
Lest we forget, Netflix is already prohibitively expensive in the market with a P/E of 330.60, which is way ahead of the industry average of 22.60 (read more: P/E Ratio: What Is It?)
Amazon More Costly
The biggest competitive threat to Netflix is arguably Amazon.com Inc. AMZN. When it comes to streaming services, Amazon’s market share is second to Netflix. But, Amazon is too expensive as well. The e-commerce giant is trading above the $800 mark and has seen its stock rise 21% this year.
Another competitor is Hulu Plus, which is owned by 21st Century Fox FOX, the Walt Disney Co. DIS and NBCUniversal, a subsidiary of Comcast Corp. CMCSA. But too many companies lead to lack of clear direction and innovation. Moreover, Hulu Plus comes with ads, while you can watch ad-free content for the same price with Netflix.
Steer Clear of Netflix, Buy These 4 Media Stocks Instead
Netflix’s sound quarterly performance has made it expensive, while its competitors aren’t buyout candidates yet. In such a scenario, if you are interested in media companies, it will be wise to pick low-priced stocks with considerable growth potential.
We have selected four stocks with a handsome Zacks Growth Score and Zacks Rank. We narrowed down our choices with the help of our new style score system. Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or Zacks Rank 2 (Buy) offer the best investment opportunities in the growth investing space.
Nexstar Broadcasting Group, Inc. NXST operates as a television broadcasting and digital media company in the U.S. It focuses on the acquisition, development, and operation of television stations and interactive community websites in medium-sized markets.
Nexstar Broadcasting has a Growth Score of ‘B’ and a Zacks Rank #2. The company’s projected earnings growth rate for the current quarter and current year are 60.74% and 59.10%, respectively. Nexstar Broadcasting closed at $51.90 on Oct 18, while Netflix settled at $118.79.
Sirius XM Holdings Inc. SIRI provides satellite radio services in the U.S. The company broadcasts music along with sports, entertainment, comedy, talk, news, traffic and weather programs.
Sirius XM has a Growth Score of ‘B’ and a Zacks Rank #2. The company’s projected earnings growth rate for the current quarter and current year are 43.33% and 43%, respectively. Sirius XM closed at $4.10 on Oct 18.
Bridgeline Digital, Inc. BLIN provides iAPPS Web engagement management product platform in the U.S. The company’s platform enables companies and developers to create websites, web applications, and online stores.
Bridgeline Digital has a Growth Score of ‘A’ and a Zacks Rank #2. The company’s projected earnings growth rate for the current quarter and current year are 50% and 30.8%, respectively. Bridgeline Digital closed at $0.679 on Oct 18.
SINA Corporation SINA operates as an online media company in the Peoples Republic of China. The company's digital media network of SINA.com (portal), SINA mobile (mobile portal and mobile applications) and Weibo (social media) enable Internet users to access professional media.
SINA has a Growth Score of ‘B’ and a Zacks Rank #1. The company’s projected earnings growth rate for the current quarter and current year are 26.67% and 43.70%, respectively. SINA closed at $77.54 on Oct 18. You can see the complete list of today’s Zacks #1 Rank stocks here.
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