Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Industry watchers would proclaim that TV is dead. The way forward is “streaming” – wherein content is made available on demand for the viewer to consume at a time of their choosing. Once considered impossible due to the limited telecommunication bandwidth of a copper telephone cable, technology has made it not just possible but preferable since it’s no longer dependent on a bulky (and expensive) television set.
Top broadcasting companies have been rising to the challenge from upstart technology companies specializing in streaming. This article will dig into the metrics defining performance in this space and present an outlook on three prominent players – Disney (ticker: DIS), Netflix (ticker: NFLX) and Roku (ticker: ROKU).
Landscape and Value Propositions
The video streaming market has been growing in tandem with the availability of high speed internet connectivity. With this as a factor for growth, it was North America that predictably has the edge in total number of consumers. However, the Asia-Pacific region is the region that is slated to grow the fastest over the next few years.
A factor that ensures success is the variety of content made available. So, a brief overview of the three companies and their respective value propositions would be in order.
Netflix started out as a humble rental DVD mail order service, competing against the now-defunct Blockbuster video rental store network It went into the streaming space with a launch in Canada in 2010, before branching into the US the next year. Over the years, the streaming segment went on to become its top revenue earner while the DVD rental segment dwindled away into virtual insignificance.
As of February 2021, Netflix had at least 15,000 titles (i.e. movies and TV shows) across all its international libraries. This number has been declining as the company has been building out its original content library in favour of sharing revenue with the title provider. North America remains its main source of revenue with Europe, Middle East and Africa (EMEA) a close second.
Starting out in 2008 as a Netflix project to develop a player, Roku went on to become a company in its right with its “Roku box”: a small square device for the TV that connects to the internet and allows the user can watch free and paid video content via apps (also called “Channels”). The company operates two main business segments:
In terms of revenues, the “Platform” segment has become increasingly more important and profitable for Roku. For example, 98% of the company’s Gross Profit in Q4 2020 came from this segment.
While DPEP is comprised of theme parks and resorts in Florida, California, Hawaii, Paris, Hong Kong, and Shanghai and also includes a cruise line and vacation club, DMED is further broken down to:
DMED’s third segment is a rising concern for the likes of Netflix and Roku. Increasingly, more and more content developers (such as Disney, CBS and NBC) have been “going their own way”, i.e. building out their own streaming services. This explains Netflix’s increasing push to develop its own content. Roku, too, announced the launch of its own original programming in May, which will initially become available to viewers in the U.S., U.K. and Canada through its free streaming hub, The Roku Channel. The initial set of 30 titles was acquired from the now-defunct Quibi streaming service, with more original content slated to debut over the next year.
Metrics of Meaning
There is a substantial disparity in comparing the entirety of Disney versus the other two: the former’s non-streaming properties are much larger than its streaming segment. Plus, the former took a massive hit during the pandemic-induced restrictions.
Doing a side-by-side comparison of operating income gives very skewed results.
Furthermore, with respect to Disney, a closer look at the financial statements for the first six months of 2020 versus 2021 reveal another characteristic of the company’s streaming division.
While revenues collected by the streaming services were higher, the operating income has, in fact, been negative (albeit less so than the previous year) – thus making the streaming division a loss-maker. The true profit leader has been its traditional TV networks, despite the marginal fall in revenue.
The business of streaming is quite like the e-commerce conundrum discussed earlier: it takes a lot of capital to get a profitable business up and running. Netflix had worked out its teething issues earlier; Disney’s streaming division is still working out the kinks.
A metric used by industry watchers is “Average Revenue Per User” (ARPU). A non-GAAP measure, this metric allows management as well as investors to refine their analysis of a company’s revenue generation capability and growth at the per-customer level.
Over the past year, Disney+’s ARPU has fallen by 28%.
Netflix, on the other hand, has shown a steady increase across all regions with a corresponding rise in worldwide ARPU.
Roku, however, has been skyrocketing in this metric.
Roku’s ARPU for Q1 2021 was $32.14, up 32% YoY. In Q1 2019, ARPU was $19.06, a 27% YoY gain. For Q1 2020, it was $24.35, which was a 28% increase. And now with original content slated for release, this metric is only expected to increase – either by drawing in new subscribers or by increasing the amount of time that subscribers will stay tuned in.
Given what we have learned about the companies and the most meaningful metric in the streaming business, the year to date (YTD) stock performance comparison of these 3 companies versus the benchmark S&P 500 (SPX) should come as no surprise.
Investors must bear in mind, however, that comparing Disney versus streaming companies is a little unfair. While the company’s streaming division is slated to grow in strides in the future, it is neither at full potential currently nor is it a major component of the behemoth that is “The Mouse”. In a similar vein, another contender frequently stated as serious competition in the subscription-based streaming market is Amazon Prime. Currently, upon purchasing Prime membership, the purchaser gains access to exclusive shopping discounts and other related value savers; access to content is an additional benefit. Thus, determining the value of Amazon’s streaming business as a standalone becomes rather difficult.
Netflix’s flagging stock performance lies in its non-reliance on a television set as well as the quality of its content vis-à-vis the cost of producing the same. The company is now offering online gaming at no additional cost to its subscribers, which will likely make a huge difference in the future (we have, in fact, covered the gaming market in a previous article). Meanwhile, Roku’s performance lies in its ability to bring eyeballs to content hosted on its service and the inherent advertising potential therein. The content it produces on its own could very well be the cherry on top. However, at this point, your guess is as good as ours.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
Terms and Conditions
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.