We’ve all seen the stories about Disney+ and HBO NOW and the other direct and “over the top” (OTT) streaming services that content providers are hoping will replace their shrinking cable income… and, of course, about whether or not Netflix can remain at the top of the heap among the streaming providers…
… so it’s no big surprise that we’re getting pitched with investment ideas based on these “streaming wars” — and this one from Eddy Elfenbein caught my eye, perhaps because I enjoy following Eddy on Twitter and he’s long been an interesting guy in the blogging and social media side of the investing world (he has also gotten a decent amount of attention because the annual “buy lists” he posts each year have beaten the broader market — 2019’s is here, if you’re interested, along with some info on the track record).
But this isn’t his Crossing Wall Street blog that we’re talking about today, it’s his teaser ad pitch for his paid newsletter put out by Investors Alley, Growth Stock Advisor ($49/yr).
So what’s the stock being touted, and is it worth looking into? Well, I can at least sift through the clues and ID it for you — after that, you might have to think for yourself (which is generally encouraged, anyway).
This little excerpt basically sums up the broad market opportunity:
“According to TechCrunch, 33 million have already cut the cord…and that rate is climbing 32% every year.
“It’s reported over 147 million Americans will watch Netflix this month.
“That’s almost half the population in the US including children.
“Meaning, more people will stream Netflix in America than they will eat fast food this month, according to USA Today!
“And this isn’t a fad. People are going to be streaming for decades to come….”Are you getting our free Daily Update
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Which is probably true… maybe we’ll end up spending even more on streaming than we did on those hated cable “bundles” of channels we didn’t want, but it does seem like streaming is going to keep taking more and more of the TV pie. Even if I’m noticing that though I dropped cable TV years ago, I’m somehow also paying for several streaming services that I don’t use very much, come to think of it.
So what’s the investment being teased? From the ad…
“…if you think you missed the boat because you didn’t buy Netflix stock…
“I believe today is the most incredible opportunity to profit from this streaming “gold rush” since Netflix’s IPO.”
And then we get some actual hints about the investment…
“I’ve found a little-known, little-talked about opportunity in streaming….
“JP Morgan just increased their stake in this streaming play by 442%
“Renaissance Technologies dumped 1,223% more into this investment…
“Clearline Capital bumped their share by 161%”
OK, so that gets us started… and we know that the stock is either near or under $10 a share, since that’s the minimum cost to “get in” that they tease. What else?
“There are too many streaming services popping up.
“Rather than guessing which streaming company will win and investing in that stock…
“I’ve found something even better. Something even more lucrative….
“The investment sits at the heart of how streaming companies work.
“Without this opportunity, streaming companies would not be in millions of homes as they are now.”
He also says they could “triple their dividend payouts very soon,” so maybe this stock pays or will soon pay a dividend.
Then he starts to talk about the three ways to win in the streaming wars…
“There are three main ways to play this streaming wars….
“To start #1: I’m looking at advertising….
“One company that has had a quiet hand in the early stage of ad delivery for streaming is Adobe. They’ve helped companies run and support their ads on other platforms.
“Since Netflix launched streaming in 2007, Adobe is up 641%. That would turn $10,000 into over $74,100.”
Adobe (ADBE) is, fairly quietly, a significant party in advertising and has certainly been a strong stock for a long time. It’s really, really expensive now, but so are the other profitable cloud service/subscription companies, in advertising or elsewhere.
“#2 way to play the streaming wars: I’m looking at hardware.
“That could include the cables you need to plug into your streaming device. If you want a steady dividend payer, you could go with an internet company that exists already like AT&T. That’s not the play I’d make, but that’s an example.
“A more direct example could be the device you need to access all your streaming apps.
“An easy example is Roku.”
I’ve been tempted by Roku a few times, but didn’t see the huge potential a couple years ago… and can’t stomach the crazy valuation today, so I’ve not ever owned it.
Then Elfenbein says,
“I’ll show you a $10 investment opportunity that could both triple your profit and income at the same time.
“They also are involved in the hardware space, and could change the streaming landscape by themselves.”
And the third opportunity he says he sees is in content delivery…
“… there is a lot of software and coding going on behind the scenes to keep your streaming experience running smoothly.
“That software is a content delivery system. That consists of server space, or data management, content delivery management…there is a whole slew of services packed into that content delivery experience.”
He doesn’t mention a specific content delivery network, but does go on to say that the $10 stock he likes is involved in all three of these aspects of the “streaming wars.”
Which finally leads us to some real hints…
“This relatively small company is in multiple arenas in streaming.
“They have a hand in advertising as all their content will include some sort of advertising from outside vendors.
“Their stock trades for less than $10.
“They run just under $180 million in revenue each year.”
And just to throw in another buzzword, this is also a company doing something using artificial intelligence…
“If my #1 streaming “gold rush” play develops advanced AI that keeps viewers hooked in early 2020…
“They’ll absolutely dominate the streaming space because everyone will want their technology
“They’re launching this product early 2020…and when they do…I expect the stock to skyrocket immediately.”
And that’s about all we get by way of clues… so let me fire up the ol’ Thinkolator.
Just give me a sec, I have to drag it out of the garage… we’re lucky the snow has stopped.
And OK, looking good… yep, there’s our answer: This must be Brightcove (BCOV)
How is that a match, you ask? Well, it’s under $10 (just a hair under $9 at the moment, actually)… and they are a service provider that allows content owners to launch their own streaming services (and monetize that content)… and they have trailing revenue of $177 million over the past four quarters (should be about $185 million for 2019, per their guidance last quarter).
And yes, they are releasing new services to help OTT streaming providers build their platforms — built around their Video Cloud and what they now call Brightcove Beacon. Essentially, they’re making it possible for smaller publishers and media companies to launch their own streaming services or otherwise scale a video service quickly without investing in staff or infrastructure — Disney doesn’t need them, but New Zealand’s largest news publisher does and Monster does.
There’s not much analyst coverage of Brightcove, which is a small company, but the few analysts who do cover them see revenue growth of about 10% in 2020, and 22 cents per share in earnings — so that’s about 40X forward earnings for a company that isn’t yet growing very fast… which means you have to have some imagination and think about streaming really taking off and dragging a small player like Brightcove into the spotlight, helping them to sign on more video clients and building up their network effect as they partner with large players like Adobe.
So sure, it’s a reasonable idea and I like the concept — but I can also see things moving quickly in the video space, with lots of different services that can help you distribute video, including lots of players similar in size to Brightcove or a bit smaller that are not independent or not publicly traded, and it’s quite possible that Brightcove won’t be able to launch into that next phase of growth in that competitive landscale. They also don’t pay a dividend, so since the rest of the clues match perfectly I’m not sure where they’re coming from with that implied cash payout tripling — maybe Elfenbein is also hinting at another stock in the streaming space, perhaps a data center REIT or a big telecom company that does pay a dividend, or maybe he thinks Brightcove will begin soon to pay a dividend. Or maybe the Thinkolator’s wrong this time (this happens about once every other year, after which I fall into despair for a few weeks), so if you’ve got another little company that matches those clues please do share it with us using the friendly little comment box below.
Which is also where you can toss your thoughts about Brightcove on the pile, if you like — it looks kind of interesting, but not so cheap that I find it hard to resist at first push.
Disclosure: Of the companies mentioned above I own shares of Google parent Alphabet, Facebook, and Disney. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.