2020 is (finally) drawing to a close, and we’ve got to be honest — it’s been a really strange and tough year. An ongoing global pandemic threatened the lives of millions, and the economy was plunged into a recession.
Yet the stock market is telling a different story. It’s been on fire this year and is showing no signs of cooling off. After bottoming on March 23, the S&P 500 jumped a staggering 65% and is sitting at RECORD highs. Let that sink in for a minute.
Along with the broader market’s rally, most sectors that got hammered in the beginning of the year have also seen their stocks recover pretty significantly, including some familiar names within media.
There’s never a shortage of attention paid to big tech companies that dabble in media. And it makes sense: Companies like Apple, Amazon, Alphabet and Facebook have massive market valuations and represent a large chunk of the stock market, so it’s no mystery why investors are obsessed with them.
But there’s a group of large-cap media stocks that have been quietly racing toward $300 billion in market cap amid a broader rally this year. Disney, Verizon, Comcast, Netflix and AT&T are all currently sitting at valuations in the $200 billion range. AT&T may have gotten close in Nov. 2019, but none of these companies have ever seen a valuation of $300 billion.
So which company will get there first, and what are some catalysts that could propel them and risks that could hold them back?
If you follow the markets in any capacity, then you know everyone loves nice round numbers. That’s why it’s always a big hoorah every time the Dow clears a thousand-point milestone, and Dow 30,000 was the latest.
While some may argue that these round numbers don’t actually reflect anything significant, they actually do. They are big indicators of investor sentiment, and the market is all about sentiment and emotion.
At the beginning of April, VIP outlined the COVID carnage on media companies. For the most part, big media has made a pretty sizable comeback since March, with the exception of AT&T.
But the narrative this year has been rather complicated. Though COVID-19 has been a huge drag on most media businesses, they’ve also seen some benefit from the pandemic. And what we’ve learned through the third-quarter earnings season is investors seemed to care much more about future streaming and DTC strategies as opposed to temporary negative financial impacts from COVID.
Take Disney. Theme parks have either been shuttered or partially reopened for most of the year, and that is putting massive pressure on the company’s biggest free-cash-flow-generating business, not to mention the blow to Disney’s movie production business.
Despite those challenges, the stock has been holding up really well. Its aggressive pivot toward streaming with Disney+ has been its saving grace. So much so that Disney saw a 60% market cap gain since the end of March, and the stock hit fresh all-time highs last week.
For now, the assumption for theme-park operating companies like Disney and NBCUniversal parent Comcast is that once the vaccine is out and the pandemic is under some sort of control, there will be enough pent-up demand to make up for lost time. As long as that proves to be the case, Disney and Comcast could see even more gains ahead.
Meanwhile, the biggest benefit for Netflix through the entire pandemic has been its singular-focused business. Its foundation of quality content and lots of it has been its bread and butter, as its peers with more complicated businesses struggled this year.
Netflix has been part of the so-called “COVID trades” this year as one of the biggest beneficiaries of the stay-at-home culture shift. The stock is up a whopping 38% from the March lows, adding $56 billion in market cap during that time.
However, this year was an anomaly for Netflix. The growth that the media giant was able to post is likely unsustainable as the world returns to normal and stay-at-home culture is no longer encouraged.
As much as its content library is valuable, it comes down to subscriber growth for Netflix. While it is a staple subscription among many households in the U.S. and internationally, without hefty sub gains, Netflix stock is unlikely to reach the record high it hit in July and thus reach the $300 billion milestone first among its peers.
Then there are the telecom giants turned media giants like Verizon and AT&T. As much as AT&T is a media company with its ownership of WarnerMedia, the bulk of its revenue still comes from its wireless business.
And a new dawn is coming for telecom — 5G. The new technology is expected to change the game for both the telecom companies and the consumers, and it is expected to be a big catalyst for their stocks.
AT&T needs that boost. It tried and failed to be the first media company to cross $300 billion in market cap, and compared to its peers, it’s not doing as hot this year either. HBO Max still has a long way to go before it catches up to Netflix and Disney+. But the surprise move by Warner Bros. to release its entire 2021 movie slate simultaneously at movie theaters and HBO Max could be the secret sauce the company needed to not only weather the COVID storm but to also become a more dominant presence in the streaming wars.
As far as which company is likely to hit $300 billion in market cap first? Well, our bets are on Disney. Not only is it a spitting distance away, but it also has its highly-anticipated investor day coming up on Dec. 10. On the company’s latest earnings conference call, management said repeatedly to stay tuned for more info on Disney+ at the event, and if that is any indication, some good news is probably on the way.
Despite all of the positive catalysts on the horizon, the biggest risk of COVID-19 remains. The pandemic still has the power to change the fates of these companies, and all is contingent on the recovery of the economy.
Cheers to 2021, and maybe one of these media companies will have a $300 billion reason to celebrate in the new year.