How Wall Street Is Treating Media Stocks Differently in 2021

How Wall Street Is Treating Media
Yinchen Niu/VIP

2021 is making for a topsy-turvy year for the leading media companies. 

While the largest economies in the world, including the U.S., step out of the shadow of the pandemic, the stocks that benefited most from the lockdown are seeing their glory days of last year in the rearview mirror, while those that weren’t as fortunate find themselves in better standing. 

Streaming played an integral part in the COVID pandemic, and the proof was in the shockingly strong subscriber growth last year from the biggest players, like Netflix. The streaming giant saw its stock rally 67% in 2020 and eventually hit intraday record highs in mid-January 2021.  

However, the stock hasn’t been able to revisit those highs since. After adding a total of 35.6 million global subscribers in 2020, the company fell short of its own guidance by more than 2 million during its first quarter. Netflix shares were down nearly 6% so far this year and have been underperforming both the broader market and its peers. 

Then there was Disney+. It was a streaming newcomer headed into 2020, but it quickly rose through the ranks and asserted itself as one of the dominant players in the space. Disney+ had 33.5 million subscribers after its first full quarter on the market and by the end of 2020, the service had a whopping 95 million subscribers.  

So even as the rest of Disney’s business suffered the wrath of COVID, its stock was richly rewarded thanks to Disney+, with the stock surging 25% in 2020 and crossing above $300 billion in market cap for the first time ever.  

But the stock hasn’t been as stellar this year. Shares of Disney were down more than 2% even as the S&P 500 rose nearly 13% in the same time period.  

There are a couple reasons why Disney’s rally hit pause this year. First, Disney+ growth in its fiscal Q2 came in lower than Wall Street estimates. Second, investors are back to caring about Disney’s core businesses such as theme parks and studios.  

With the economy reopening in the U.S., investors need more proof that Disney’s cash cows are recovering at a healthy pace. Its fiscal Q2 showed the recovery might be a bit slower than initially anticipated. Theme parks revenue in the quarter fell 44%.  

A different narrative played out for AT&T and Comcast. Both stocks underperformed rivals Netflix and Disney in 2020, but the opposite has been playing out this year. 

AT&T’s core businesses are coming back with a vengeance this year, and the recovery in those segments is offsetting other losses. Not to mention, the bombshell announcement that AT&T will be combining WarnerMedia with Discovery’s media assets.  

Shares of AT&T initially rose 2% Monday morning on the news, even as the broader markets were lower across the board. Though the stock eventually ended the day lower, the initial reaction was a clear sign investors were in support of the combined WarnerMedia-Discovery company. It’s finally time to pay off that large debt load and streamline its business to be able to drive long-term growth. 

Meanwhile, Comcast proved with its Q1 results in late April that its stock is both a safety and reopening trade that stands to further benefit in a post-pandemic world. It may not have seen the sky-high gains like Netflix and Disney in 2020, but it was roughly in line with the broader market.  

Comcast’s wireless business was the glue holding things together during the pandemic, and while NBCUniversal may have struggled significantly because of COVID, it’s poised to rebound in the second half of this year. 

Last year, there was so much uncertainty about how long it would take for companies to recover from the global pandemic. Thus, investors shifted their focus away from investing in fundamentals and instead put their money in media companies paving a path toward a successful future with streaming growth. 

This year, streaming growth will still matter but not as much as it did in 2020. Investors are once again paying close attention to the core businesses of the media giants and how the recoveries in those beaten-down segments are going.  

Post-first-quarter-earnings stock moves were the clearest indicator of that sentiment. The media companies that showed a meaningful recovery in their core businesses were congratulated, while those that struggled to maintain growth or show any additional areas of strength were punished. 

Things could look different again next year, but 2021 is about something more than just the prospect of a brighter future.  Media giants will have to prove they’re willing to either make bold moves (ahem, AT&T and Discovery) or bring something extra to the table not to get left behind.