How These Companies Are Streaming Money
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Times are changing in the movie industry. More and more people prefer to stream a movie directly from their computers rather than heading to the theaters and paying over $10 to watch a movie and enjoy overpriced beverages. Several companies have changed the way people view movies, but has one separated itself as a viable investment option? Most people would immediately answer "Netflix" (NASDAQ: NFLX) if asked what company to use when streaming a video. While Netflix holds the position of Goliath in the online video streaming industry, it may not hold the same title as an investment opportunity.
Netflix was the first major company of its kind, but many companies have risen as competitors since then. Netflix experienced a 13% increase in revenues last year, which follows its pattern of more than ten years. Obviously, they are still growing sales, and their stock has shown the same results. Yes, in 2011, the stock plummeted, but it has still increased over 1,700% in the past ten years.
In 2012 Netflix took a roller coaster ride but ended up with a 1.4% gain. Netflix shows a 7.1% free cash flow yield. Free cash flow (FCF) yield shows what percentage of a company's share price is represented by the cold, hard cash it's churning out (the higher the percentage, the cheaper the stock).
Amazon (NASDAQ: AMZN) has positioned itself to be the biggest competitor to Netflix. Amazon Prime is an instant online video streaming service. Their accounts include multiple benefits, such as free two day shipping on millions of items or free book rentals for Kindle users. Amazon Prime built up its catalog of movie titles in September by signing a deal with Epix. For a long time, Netflix held an advantage over Amazon Prime in one major area. For users without an Amazon Prime account, a movie rental costs at least $2.99, only about $5 less than a monthly Netflix subscription. However, in November Amazon matched Netflix with its monthly account cost of $7.99.
Amazon's stock has done well, showing a steady increase over the past ten years. At a steady pace, it has increased over 1,100% over that period time. This is still less than Netflix, but without the major roller coaster rides. Amazon's FCF yield is not very attractive, however. FCF yield for Amazon is just around 1%, but the stock soared over 50% in the past year.
Wal-Mart (NYSE: WMT) is not typically known for its instant online video streaming, although it has picked up steam in the past year. Last year Wal-Mart signed deals with Vudu to allow online streaming directly from Wal-Mart's website. Unlike Amazon and Netflix, Vudu does not have a monthly fee. An account is free, and users are only charged for the content they watch. This, however, is not always an advantage as major films will sometimes cost $5.99 upon release. Vudu boasts its ability to release movies the day they are released on DVD. Netflix, however, waits 28 days after DVD releases. Potentially Vudu's largest downfall is its quality. They do not allow HD settings on any mobile devices, but only on TV sets.
Wal-Mart has grown as a stock, but not exponentially like Amazon and Netflix. In ten years it has increased 36%, however nearly 16% of that growth has occurred in the past year. Revenues have increased every year for the past several years, and 5.4% in 2012. Though Vudu might not have the household name that Netflix does, Wal-Mart has the ability to make anyone a major player. Wal-Mart's FCF yields have been above 5% for a significant time, and it still maintains that figure.
The Bottom Line...
Though Netflix has competitors, I wouldn't expect their profits to slump anytime soon. As more people stream movies online, these companies will likely all grow. Each one of these companies has many pros and cons, but all seem to be performing well in recent history. While Amazon's FCF yield is the lowest, and Netflix is the highest, it will be interesting to see if they perform accordingly. For a steady investor, Amazon seems to produce a good return with very little fluctuation. Netflix has produced better returns than Amazon but certainly doesn't show the stable growth of its competitor. Wal-Mart is a far more conservative route, as the company is always growing and evolving. Watch for this industry to continue to grow and thrive.
tlwofford has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!