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As we remain confined to the safety of our homes for the foreseeable future, entertainment stocks are having a moment. Although the broader entertainment sector, namely movie theaters, faces challenges during the novel coronavirus pandemic, companies that offer in-home entertainment services are seeing a heyday.
From movies to video games and music, the pandemic has created a seismic shift in the entertainment industry. For example, streaming platforms once second in line to cinemas now control the rights to major motion pictures.
Earlier this year, the highly-anticipated movie, Mulan, which was expected to generate over $1 billion at the box office, will go straight to streaming on Disney+. This gives the platform complete control of the movie including revenue, data and distribution.
This growth has spread to online games and music streaming platforms as well. With the digital revolution underway, it is wise to get behind the top entertainment stocks in this sector. Here are our top 3 picks:
Entertainment Stocks: Disney (DIS)
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Although its doors remain open, the corona-economy crippled Disney’s parks business as visitor rates are a fraction of pre-pandemic days. While this left investors wary about the future prospects of the company, Disney’s streaming platform, Disney+ proved to be its lifeboat in an hour of need.
The pandemic presented the company with a unique opportunity to take the emerging streaming platform to the next level. Disney’s plan paid off as subscriptions accelerated in the third quarter.
Since then, the platform continued to add some big-ticket names, including Hamilton that was set for a theater release in October 2021. After purchasing the rights to the movie for $75 million, the show premiered on Disney+ for its paid subscribers. It was downloaded 752,000 times three days after the release.
Disney hopes to keep the momentum going. The much-anticipated release of Mulan on Disney+ is likely to send the stock price soaring. And, there is talk of a new platform with content from Disney’s subsidiary networks including ABC, Fox Television and Freeform.
Disney reported earnings on Aug. 3 and although revenue and earnings per share fell, Disney+ ratings showed a glimmer of hope. Subscriptions rose from 54.5 million in May to 60.5 million. This number is expected to grow in the coming years.
Although Disney stock may not seem an attractive investment at face value, the company’s prosperous streaming platform makes it one of the entertainment stocks to consider. Disney+ is capable of catapulting this stock to new highs in the coming months and years.
Spotify (SPOT)
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Music streaming saw a boost during the pandemic and companies like Spotify benefited from accelerated growth. Although revenue took a hit from large investments this past quarter, future prospects for this streaming service are very promising.
Spotify’s business model remained resilient to the pandemic and the company’s user base expanded in the last few months. As more people streamed content online, the company capitalized on this opportunity to support its future growth. Spotify inked a number of high-profile partnerships with podcast stars to create content.
These investments paid off as the music streaming giant reported 8 million net subscribers on its platform in the quarter ending in June. The numbers lifted analysts’ expectations and Mark Mahaney of RBC Capital increased the stock price estimate from $320 to $330.
Spotify sees its streaming service as a constant conversation with the audience. Each feature added is done to increase engagement with its 300 million users. The company also is adding more original content to maintain the platform’s exclusivity. This will help it attract new artists and new users.
Spotify’s total addressable market is in the billions and the company is adding new users every single day. With a number of new features and high-profile deals with Michelle Obama and Kim Kardashian in the pipeline, Spotify is an entertainment stock that won’t stop growing anytime soon.
Activision Blizzard (ATVI)
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Entertainment stocks like Activision Blizzard have been on a wild ride since the start of the pandemic as more people took to gaming during the lockdown. In 2020, it is estimated that 2.7 billion gamers will spend $159 billion on games, a number that is expected to reach north of $200 billion by 2023.
Activision Blizzard’s stock rallied an impressive 39% this year and experts believe this upward trend is likely to continue through the year. With a remote work environment, video games became a compelling pastime for an older demographic as well. This bolstered the demand for Activision Blizzard’s online and PC games.
During its second quarter, the company saw a 37.8% increase in its revenue to $1.93 billion and a 76% increase in net income at $580 million. Cash flow for the year also increased by almost 500%.
Activision Blizzard pays a dividend each year with a yield of about 0.50%.
With strong revenue numbers and a growing presence, Activision Blizzard is an entertainment stock that is expected to outperform the market this year. Given the current momentum of video games, we recommend you stay invested in this stock.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.
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