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Solid Q3 Makes Netflix Pricey: 4 Low-Cost Media Picks

Tirthankar Chakraborty

Netflix, Inc. NFLX notched a fascinating third quarter that no one saw coming. This has encouraged firms to jack up their price targets for Netflix. This steers away small investors who can’t afford large stakes in such companies. Thus, if you have a taste for media stocks and don’t want to burn a hole in your pocket, there are companies trading cheap with solid growth potential.

Impressive Q3 for Netflix

Shares of Netflix jumped 7.1% on Oct 17, courtesy of a stellar earnings beat in the third quarter. The company reported earnings of $1.47 per share that surpassed the Zacks Consensus Estimate by 42 cents and was better than management’s guidance of $1.04. Moreover, earnings jumped a stellar 65.2% on a year-over-year basis.

Though this Los Gatos, CA-based company’s revenues of $5.25 billion have missed the Zacks Consensus Estimate, the metric is up 31% from year-ago levels. What’s more, excluding a negative impact of $137 million related to unfavorable foreign exchange, consolidated revenues grew 35% year over year.

To top it, the streaming giant announced net additions of 6.77 new subscribers in the third quarter. This is indeed a welcome change compared to the second quarter when Netflix had added only 2.7 million, much below the forecasted 5 million. Lest we forget, Netflix is still a leading provider of video streaming content. After all, it has nearly 60.1 million domestic subscribers and 91.5 million international members.

Price Goals Increase for Netflix    

The streaming giant’s grand third-quarter show came just in time. Analysts who were lowering their price targets and downgrading the stock post its dismal second quarter, have now adopted a different stance.

Almost 35 analysts are currently offering a 12-month price forecast for Netflix to around a median range of $400, with a high estimate of $451 and a low estimate of $188. But, if we focus on the median target range, it represents a more than 35% increase from Netflix’s last closing price of $293.35.

All these imply that Netflix is a pricey pick for now. Lest we forget, Netflix is already prohibitively expensive in the market with a P/E of 88.57, which is way ahead of the industry average of 4.3 (read more: P/E Ratio: What Is It?)

Netflix’s biggest threat is Amazon.com Inc. AMZN. When it comes to streaming services, Amazon’s market share is close to Netflix. But, Amazon is expensive as well. The e-commerce giant, in its last trading session, closed at $1,787.48.

Steer Clear of Netflix, Buy These 4 Media Stocks Instead

For those interested in media companies at a budget, it will be wise to pick low-priced stocks with considerable growth potential. We have thus selected four such stocks that also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Roku, Inc. ROKU operates a TV streaming platform. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 50% in the past 60 days. The company’s expected earnings growth for the current year is more than 100%. Roku closed at $139.07 on Oct 17, while Netflix settled at $293.35.

Discovery, Inc. DISCA operates as a media company worldwide. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 0.3% in the past 60 days. The company’s expected earnings growth for the current year is 71.6%. Discovery closed at $27.89 on Oct 17.

SINA Corporation SINA operates as an online media company in the People's Republic of China and internationally. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 0.8% in the past 60 days. The company’s expected earnings growth for the next year is nearly 21%. SINA closed at $41.32 on Oct 17. You can see the complete list of today’s Zacks #1 Rank stocks here.

iHeartMedia, Inc. IHRT operates as a media and entertainment company worldwide. It operates through three segments: iHeartMedia (iHM), Americas Outdoor Advertising (Americas Outdoor), and International Outdoor Advertising (International Outdoor). The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 35.2% in the past 60 days. The company’s expected earnings growth for the next year is 2.2%. iHeartMedia closed at $14.50 on Oct 17.

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Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Sina Corporation (SINA) : Free Stock Analysis Report
 
Discovery, Inc. (DISCA) : Free Stock Analysis Report
 
Roku, Inc. (ROKU) : Free Stock Analysis Report
 
iHeartMedia, Inc. (IHRT) : Free Stock Analysis Report
 
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