Streaming Services: The Big Winners You Need to Know

Streaming services have become a part of everyday life, much like grabbing a coffee or checking social media. According to a Forbes study, 99% of US households now pay for at least one streaming service. This trend isn’t just in the US; Latin America and the Asia Pacific are also seeing big jumps in subscribers, with growth rates of 8% and 21% respectively. This shows that streaming is a global phenomenon.

However, as the demand for streaming grows, so does the competition. Companies need to keep their prices fair and their content diverse to keep customers happy. The same Forbes study found that 45% of Americans canceled a streaming service because it was too expensive. In this competitive market, there will be clear winners and losers.

Netflix: The Undisputed Leader

Think of Netflix (NASDAQ: NFLX) as the king of streaming. Remember when Netflix started as a DVD rental service? Now, it’s a giant in the online streaming world. Netflix had its breakthrough in 2013 with the launch of its “Netflix Original Series.” By 2014, it had 50 million subscribers worldwide. Fast forward to today, and Netflix boasts over 270 million paying subscribers with a 10-year compound annual growth rate (CAGR) of 19.3%.

Netflix keeps growing by offering exclusive shows like “Berlin,” which attracted 56.7 million views, and continuing popular series like “Avatar: The Last Airbender,” which garnered over 63 million views.

Financially, Netflix is doing great. In the first quarter of 2024, its revenue grew by 15.9%, from $8.2 billion to $9.5 billion. Net profit soared by over 78.7% to $2.3 billion, and they generated a positive free cash flow of $2.1 billion for the quarter.

Netflix also makes a lot of money per user in the USA and Canada. With an impressive operating margin of 28.1%, it outshines Disney’s streaming service, which has an operating margin of only 0.8%.

With high operating margins and strong revenue per user, Netflix is a profitable business worth considering for investment. This year, Netflix plans to spend $17 billion on content, mostly on original shows. Exciting releases include “Arcane Season 2” in November and “Black Mirror Season 7” next year.

iQIYI: A Rising Star in China

iQIYI (NASDAQ: IQ) is like the Netflix of China, focusing on Chinese films and series. It’s a part of Baidu, a big tech company, which helps iQIYI use advanced technology like AI and big data to offer a great streaming experience.

In the first quarter of 2024, iQIYI’s research and development spending was 5.4% of its total revenue, a bit lower than Netflix’s 7.5%. While iQIYI stopped reporting quarterly subscriber numbers and revenue per user, it had an average of 111.9 million subscribers in 2023.

For the first quarter of 2024, iQIYI reported $1.1 billion in total revenue, a 5% decrease from the previous year. Membership service revenue was $664.6 million, a 13% decline year on year, largely because of high revenue the previous year. Despite this, net profit increased by 6% to $90.8 million, and they generated a free cash flow of $126.8 million.

iQIYI is focusing on using AI to boost ad revenue, which hit a record high in the first quarter of 2024. Its content distribution business also saw significant growth, showing the popularity of iQIYI’s original series among Chinese viewers. Content distribution revenue grew by 27% year on year.

Drama continues to be iQIYI’s top category, maintaining the lead in viewership for the past nine quarters.

Takeaway

Streaming services are as essential today as your morning coffee, and companies like Netflix and iQIYI are leading the way. For new investors, these two streaming giants offer exciting opportunities as they continue to grow and innovate in this competitive market. Investing in these companies could be like buying a ticket to the future of entertainment.