If you think tech stocks are taking a beating this year, wait until you see the streaming services. Trading now at a steep discount, they definitely fall in the category of bargain stocks.
Cord-cutting was already a thing before the Covid-19 pandemic. People were much more interested in dropping cable services and picking up on-demand content that they can get from streaming services.
But it was during the pandemic that streaming services really picked up steam. People were stuck at home and suddenly Joe Exotic was a household star. Shows like Succession and Squid Game became cultural events when new episodes dropped.
According to eMarketer, an estimated 35.5 million U.S. households cancelled cable services by the end of 2021. That’s about 27% of the market. That number is expected to rise to 46.6 million households, or more than 35%, by the end of 2024.
And Pew Research says that more than 60% of people age 18 to 29 who don’t have a traditional TV subscription say they have never had one. Cable TV will likely never capture those customers.
The tech sector is suffering right now because investors are worried about rising inflation and the likelihood that the Federal Reserve will raise interest rates in March. Those kind of fears are pushing investors away from growth stocks and seeking safe haven.
The tech-heavy Nasdaq composite is down more than 8% this year. That’s much worse than the Dow Jones Industrial Average, which is down only 3%.
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But the streaming services names on this list are down much more — and that means they can be had at a steep discount. Let’s look at three bargain stocks in the streaming services space.
- Netflix (NASDAQ:NFLX)
- Roku (NASDAQ:ROKU)
- fuboTV (NYSE:FUBO)
Bargain Stocks to Buy: Netflix (NFLX)
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Netflix is the “granddaddy” of streaming services. Founded way back in 1997, it got its start as a rent-by-mail DVD service. But those days are way, way in the rearview mirror. Today, Netflix has about 222 million subscribers.
But there are challenges. As the big dog, Netflix is always fending off the competition. And there’s plenty of competition from streaming competitors Disney (NYSE:DIS), Apple (NASDAQ:AAPL) and HBOMax, which is owned by AT&T (NYSE:T).
Because of the competition, Netflix is projecting that this year will have its slowest customer growth since 2015. It added 8.3 million new subscribers in the fourth quarter, which was less than the 8.5 million it targeted.
In the first quarter of this year, Netflix says it believes it will add only 2.5 million subscribers. That would be down from 4 million in the first quarter of 2021.
To answer the challenge, Netflix is raising prices in the U.S. and Canada (a good move) while lowering prices in India to spur international growth. It also acquired the gaming studio Night School in an effort to get into the lucrative gaming space.
NFLX stock is down 33% so far this year. But with an average price target of $500, Netflix represents potential upside of more than 30%.
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Roku operates the most popular streaming service in the United States. The company was founded in 2002, and developed the first set-top boxes in conjunction with Netflix.
Netflix eventually decided to spin off the Roku business into its own company so Roku could enter into third-party agreements with other streaming services.
That was a good decision. Roku Originals launched on the Roku Channel in May, featuring original scripted and unscripted series, as well as documentaries. Over the next two years, the Roku Channel is expected to launch 50 new original programs.
Late last year, it reached a multi-year extension deal with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) for YouTube and YouTube TV, ending a months-long battle between the two companies.
For the third quarter, Roku said player revenue fell 26% year over year to $97.4 million. However, platform revenue, which includes advertising, jumped by 82% from a year ago to hit $582.5 million.
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Roku stock is down 22% so far this year. But analysts have a consensus price target of $346, which is 98% upside from today’s price.
Bargain Stocks to Buy: fuboTV (FUBO)
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FuboTV isn’t the biggest or most well-known streaming service out there. But it has one thing that makes it unique — the ability to operate a sportsbook on the sporting events that it streams.
The New York-based streaming service emphasizes live sports. It has international soccer, tennis, golf and major American sports leagues. In all, you can watch more than 50,000 live sporting events each year on fuboTV.
Now FUBO is in the process of acquiring licenses to operate a sports wagering platform. Its plan is to integrate its betting platform with its live-streaming service. That will give users what the company calls “a seamless viewing and wagering experience.”
FUBO is expected to release fourth-quarter earnings later this month. While it previously issued guidance for Q4 revenue of between $205 million and $210 million, the company now says it expects to top that range by $10 million. So it appears the report will be a good one.
FUBO stock is down 24% so far in 2022. With an average price target of $33, fuboTV appears to have upside of 228%, according to Yahoo Finance.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.
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