The largest U.S. media companies have collectively lost nearly $400 billion in market value this year as worries about the recession, slowing advertising and audience trends after the pandemic created a “perfect storm” for Netflix and its peers.
Major U.S. media stocks have fallen an average of 35 percent since the start of the year, compared with a 13 percent drop in the S&P 500, for a total loss of 380,000 million dollars in market capitalization.
Even after recovering somewhat in recent weeks, the stock prices of the biggest media groups — Disney, Netflix, Comcast, Spotify, Roku, Fox, Paramount, Warner Bros Discovery, The New York Times and News Corp— have halved on average from all-time highs reached during the coronavirus pandemic, according to Financial Times analysis.
Executives and analysts blamed a confluence of factors for the bursting of the Netflix-fueled bubble in media stocks.
As the United States and other countries emerge from the pandemic, they are spending more time outside and less time at home staring at their screens. At the same time, Netflix revealed that its decade-long growth has stalled, spooking investors about the health of the entire industry.
These problems have coincided with broader fears of a recession in the United States, as central banks raise interest rates to control rising inflation and Americans grapple with tighter family budgets.
Advertising, typically the first item of spending that companies cut in a downturn, is already slowing, as evidenced by second-quarter results from Snap, Meta and Google.
“How much is the pandemic destroying the trajectory? How much is the economy worth? How much more do people want to be outside? There’s a lot of factors going on right now,” said LightShed analyst Rich Greenfield. “I’d almost call it the perfect storm to blow up the streaming story.”
Companies that rely more on streaming and advertising for revenue have been hit the hardest.
Shares of Roku, which made its name selling streaming devices but now generates more revenue from advertising on its channels, are down 65% this year and 83% from their all-time high in July 2021.
“We’re seeing advertisers worried about a potential recession, and so we’re seeing them cut their spending,” Roku CEO Anthony Wood told investors last week.
Michael Nathanson of media consultancy MoffettNathanson said “[Roku’s] The recent string of results, like many others over the past few years, was supported by the massive acceleration in video streaming that has now faded as the world has opened up.”
“We’re living through the first digital advertising recession,” Nathanson added, following a pandemic-fueled online advertising bubble “the likes of which we’ve never seen before.”
Netflix was second worst after Roku. Its shares are down 62 percent this year and are down 67 percent since their November highs. Spotify, another streaming pioneer, which makes most of its money from subscriptions, is down 49 percent this year.
After a decade of blistering customer growth, Netflix has lost subscribers for two consecutive quarters, prompting a fundamental reassessment of the industry it pioneered.
Investors had previously been excited about Netflix’s growth, which made the company one of the most successful stocks of the decade, along with Facebook, Amazon and Google. They treated Netflix like a tech stock, rewarding its rapid growth at the expense of profits.
Other media groups, such as Disney, copied the Netflix model with their own streaming services. In doing so, they were rewarded with a price-to-revenue multiple similar to Netflix and tech companies. On average, at the end of last year, the largest media groups in the United States were trading at a multiple of 49 times trailing earnings. Now that multiple has dropped to 19 times.
Media groups that still operate primarily in the traditional television and film businesses have fared better. Retransmission fees, the payments cable companies make to carry broadcasters’ content, are more stable than advertising because contracts are often tied in for years.
Fox, which makes most of its money from retransmission fees for its news and sports cable channels, is down just 9% this year and down 24% from last year’s all-time high.
Disney, which makes billions of dollars a year from theme parks and tickets for its blockbuster movies in addition to streaming, is down 30 percent this year. The group had traded last year at a multiple of more than 100 times its earnings. It now trades at 45 times earnings.
Greenfield at LightShed said, “There’s been a pretty massive shift from believing in the future of streaming to recognizing that . . . the future of streaming isn’t as profitable or as valuable as people thought.”