Last week, the Wall Street Journal reported that Disney planned to block all advertising by Netflix on all its channels except for ESPN. The move marks perhaps the most aggressive action, as the streaming wars get set to heat up in the last months of 2019. Disney+, which will serve as Disney’s primary streaming subscription service, is set to launch in November.
The rise of online home entertainment platforms like Netflix has had major consequences across a variety of industries. Cable companies have reported mass cord cutting over the past decade, and cinemas are battling declining attendance, as the theatre has become increasingly reliant on blockbusters.
Intensified competition between streaming platforms will see a consolidation of home entertainment material that will deal even more damage to legacy media.
One Canadian company to watch
Some companies are moving forward with big reforms to try to sidestep irrelevance in this new environment. DHX Media (TSX:DHX)(NASDAQ:DHXM) is one Canadian media company that has opted to reinvent itself in the final years of this decade. Back in 2018, the company laid out a growth strategy that would be heavily reliant on the development of its WildBrain property.
In late September, DHX Media announced that it would change its name to WildBrain and roll out a new brand identity. It will move forward with the tagline “Imagination runs wild.” This name change appears to be the culmination of the company’s strategic shift that it has been pushing for the past several years.
The WildBrain platform still represents a fraction of the company’s total revenue. Its growth in the next decade will be dependent on expanding this footprint.
WildBrain revenue rose 20% year over year in fiscal 2019 to $69 million. Cash flow from operations at DHX Media climbed to $44.5 million for the full year compared to $13.4 million at the end of fiscal 2018. Its net loss deepened in fiscal 2019 to $62.8 million, or $0.47 per share, compared to a net loss of $21.6 million, or $0.16 per share, in 2018.
Should you buy the stock today?
The streaming market is set to see intense competition in the coming years. Netflix stock, which has enjoyed huge gains on the back of its platform growth over the past decade, has encountered volatility due to the rise of major challengers like Disney. Other competitors like Amazon, Facebook, Apple, and AT&T also boast streaming services that threaten to cut into Netflix’s customer base.
DHX Media, or WildBrain, is a minnow in the streaming pond. However, WildBrain is a unique and exciting asset to build on in the 2020s. It already stands as one of the largest kids’ networks on YouTube, and the company already boasts popular properties like Peanuts, Teletubbies, and Calliou. WildBrain holds promise, but the growth of the company will rely on its ability to maximize this young asset.
Shares of DHX Media have surged in late September and early October, following the announcement of its name change. The stock had an RSI of 74 as of close on October 8, putting it well into technically overbought territory. I’m waiting for a more favourable entry point before I think about adding this streaming stock to my portfolio in 2019.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of Amazon, Apple, Facebook, Netflix, and Walt Disney. Tom Gardner owns shares of Facebook and Netflix. The Motley Fool owns shares of Amazon, Apple, Facebook, Netflix, and Walt Disney and has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple.