The verdict is in. Industry analysts have determined that traditional television is all but obsolete, and cable is in a last, desperate battle to remain relevant.
Consumers are far more interested in streaming services, which limit advertising and offer high-quality original programming for a low monthly fee.
In many cases, shows and mini-series are released in full-season increments, which means subscribers don’t have to wait for the next episode. The term “binge-watching” is fully integrated into language, and plowing through an entire series in one sitting isn’t out of the ordinary.
Because streaming video services are so popular, a range of entertainment companies are getting on board with their own versions. Most networks, including CBS and A&E, have their own streaming apps, and even Disney plans to roll out its branded streaming service in November 2019.
On the other side of the world, iQIYI is the go-to video service, with offerings specifically tailored for Asian markets.
Investors and analysts have demonstrated their confidence in the future of streaming services, but finding the best stock to buy can be a challenge. With so many choices, it can be difficult to identify the most likely to succeed.
The Pros and Cons of Investing in Streaming Video Services
The global market for video streaming reached $36.64 billion in 2018, and substantial expansion is predicted for coming years.
By some estimates, the compound annual growth rate (CAGR) will be 19.6 percent from 2019 to 2025. Some of this growth will be among existing users, but a large percentage will be driven by growing markets.
As more consumers adopt digital technology that is capable of handling large video files, streaming services will become easier and more enjoyable to use.
The quality of streaming video is rapidly improving as well. Transmission is smoother and faster than ever before.
Streaming services are investing substantial resources in the production of superior original content, and they are using state-of-the-art AI tools to ensure an exceptional finished product. For example, in recent years, Netflix has released critically acclaimed series like Stranger Things, Orange is the New Black, and the recent When They See Us, along with exclusive full-length feature films.
The brand has already created a series of popular dramas, and in 2018, business leaders announced that iQIYI will focus on developing original movies over the next two to three years.
These factors contribute to the strong outlook for video streaming services, which is attractive to investors. Of course, as with any investment, there are risks.
The biggest concern for any investor who chooses shares from a single streaming company is competition.
Attracting and retaining subscribers requires a balance between monthly fees and popular content. As more streaming services launch, consumers who don’t wish to pay multiple fees will narrow their memberships down to the services that have enough content to match their appetite and interests.
Is iQIYI Stock a Buy?
Unlike Netflix, iQIYI [NASDAQ: IQ] has two sources of income: subscription fees and advertising revenue. The iQIYI [NASDAQ: IQ] model includes paid streaming content, as well as a selection of content that is free to stream as long as users can tolerate advertising.
Better still, iQIYI [NASDAQ: IQ] is in a strong growth phase. In 2018, subscribers grew by 72 percent, and revenues increased by 52.4 percent. However, there is one problem. So far, iQIYI is simply not profitable.
The company is putting huge amounts of cash into buying and developing content, and that has decimated the bottom line.
For 2018, the operating margin was negative at (33 percent), and the gross margin was negative at (8.6 percent). For most investors, this data is a deal-breaker, and they prefer to wait and see whether iQIYI’s growth leads to increased value for shareholders.
Should You Invest in Netflix Stock?
As the original streaming service, Netflix [NASDAQ: NFLX] has years of data compiled. Business leaders keep this information under lock and key, because it offers deep insight into consumer behavior and preferences.
Netflix [NASDAQ: NFLX] knows how to target unique streaming options to niche audiences, and it can tailor offerings based on market. Understanding what sells and how best to balance subscription fees with content offerings is the secret to any streaming service’s success, so Netflix has a massive competitive edge.
The company already has a large subscriber base, and it has mastered the art of creating and acquiring an impressive roster of new and existing programming. For example, Netflix [NASDAQ: NFLX] established itself as number one for many consumers when it got exclusive rights to stream fan favorites like Friends and The Office.
The launch of Disney Plus will be the biggest challenge Netflix faces in the upcoming year. By some estimates, approximately 14 percent of Netflix’s current subscribers will switch to the new service.
Disney owns a number of assets that are currently popular among Netflix subscribers, including a variety of Disney and Pixar family films, Star Wars movies, and Marvel programs. Presumably, these Netflix [NASDAQ: NFLX] staples will move to Disney+ in 2019 and 2020.
Nonetheless, there is a lot to love about Netflix. The company enjoyed 25.8 percent subscriber growth and 35.1 percent revenue growth in 2018.
And while Netflix may have nearly saturated the US market, it is exploding among international audiences.
Perhaps more importantly, Netflix is turning a profit. For 2018, the operating profit was approximately $1.6 billion, with an operating margin of slightly over 10 percent.
iQIYI vs. Netflix Stock: The Bottom Line
While iQIYI [NASDAQ: IQ] may have a promising future, its current financials aren’t strong enough to support significant interest from investors. Some with a high tolerance for risk may buy, in hopes of holding shares long enough to turn a profit.
Netflix [NASDAQ: NFLX], on the other hand, is already achieving profits, and it has established itself as a dominate force in the global streaming marketplace. For most investors, it’s a much better option for reducing risk while still leaving open the possibility of increased share value.