Chicago, IL – May 6, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Netflix NFLX, Roku ROKU, Amazon Prime Video AMZN, Apple TV AAPL and Disney+ DIS.
It's been an exciting earnings season so far. Whether investors have been bullish or bearish, there have been opportunities to capture some gains on both sides of the table. However, it seems that a bearish stance has been more prosperous, as we've witnessed in some of the deep sell-offs following quarterly reports.
Two companies that have recently reported quarterly results are Netflix and Roku. Both companies are giants in the streaming and entertainment arena, quickly becoming some of investors' favorite stocks. With the meteoric rise both companies' shares have undergone over the last several years, it's no secret why they have gathered a large audience.
Following NFLX's quarterly report, shares got sent down the drain. However, following Roku's quarterly report, shares reacted positively, stringing together four straight days in the green. Today, that streak may be in jeopardy; the market is a sea of red across the board.
Below is the year-to-date share performance of both companies while blending in the S&P 500 for a benchmark.
To put it simply, it's been an absolute rough stretch for NFLX and ROKU throughout 2022, with both companies losing more than half of their share value. Netflix has taken a more profound hit, with shares shaving off approximately two-thirds of their value.
The picture that share performance has painted becomes even more interesting upon widening the timeframe over the past year. Roku shares took a downwards trajectory around the end of July 2021, while NFLX shares remained on a healthy uptrend. However, the relative strength didn't last long; Netflix shares took a steep downtrend last November.
Now that significant drawdowns have slashed these companies' valuations, it raises a valid question: Which streaming giant can provide investors with a better bang for their buck moving forward? Let's find out.
Netflix
A pioneer in the streaming space, Netflix started from humble beginnings as a DVD-rental provider before pivoting to its bread and butter – streaming.
The uprising of streaming services has made the industry much more competitive, and Netflix is no longer seen as the go-to whenever consumers search for online content. Amazon Prime Video, Apple TV and Disney+ are a few of the prominent companies that have dove into the streaming industry, negatively affecting NFLX.
Subscriber count is the most vital metric for NFLX, and things have recently turned sour in this area. Due to stay-at-home orders during the pandemic, the company's subscriber count surged in 2020, adding 37 million new customers in the year – a 32% year-over-year jump from 2019. New membership additions retraced to 18.1 million in 2021, a 50% decrease from the prior year. Additionally, in its latest quarterly release, the company provided some disheartening guidance; it is expecting a drop of two million subscribers in the next quarter.
Pairing this with the guidance NFLX provided in Q4 2021 that it expected 2.5 million new subscriber adds vs. the consensus of nearly 7 million paints a picture that illustrates a slowdown of growth in this once beloved stock.
With the massive amount of debt that NFLX has used to fuel operations, it has yet to turn a positive free cash flow. Additionally, with rising interest rates, this debt situation becomes more alarming.
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote
Roku
The leading TV streaming platform in the United States based on hours streamed, Roku has transformed into a heavyweight in the streaming arena. We see Roku TV models everywhere.
The global supply chain has been out of equilibrium for 2022 and the majority of 2021, negatively affecting the speed at which Roku's units can be delivered and overall eroding the top line. Additionally, the microchip shortage has played spoilsport for the company over the last several quarters. While these are current issues, they are expected to subside as the world comes out of the COVID-19 pandemic.
While NFLX has struggled to retain subscribers, Roku has consistently increased the number of active accounts on their platform quarter after quarter. The company reported 61.3 million active accounts in its latest quarterly release, up 2% from 60.1 million in 2021 Q4. Additionally, Q2 estimates have ROKU's active accounts metric growing 1.6% to $62.3 million.
Though the company also massively benefitted from the pandemic-induced surge of stay-at-home, it looks like Roku has still been able to stay on the right track and consistently expand its user base.
Roku's balance sheet also looks sturdier and more sustainable than NFLX's. The company's free cash flow turned positive in 2020, and the company isn't weighed down by massive long-term debt to fuel its operations like Netflix is.
Roku, Inc. price-consensus-eps-surprise-chart | Roku, Inc. Quote
While both companies are exciting, innovative investments, the recent quarterly reports and guidance from companies are very telling. Netflix's growth story has significantly slowed down, shifting investors' sentiment massively. We can see this in the nasty price action following NFLX's 2022 Q1 report; shares dropped 35% the next day following the report.
On the other hand, Roku has shown consistent growth in active users quarter after quarter. Additionally, a highly leveraged balance sheet for NFLX will undoubtedly further hinder future growth. If the market weren't a sea of red today, ROKU shares would be aiming for their 5th consecutive day in the green, a stark difference when looking at both companies' share performance following quarterly reports.
A slowdown in the growth story and a debt-heavy balance sheet leads me to believe that Roku would be better suited for investors that want exposure to the streaming industry moving forward.
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