At the onset of the novel coronavirus pandemic, streaming stocks were a guaranteed win. Everybody was stuck on the couch, so valuations were rocketing. However, that picture is a little different today, as we see in the fall of Discovery (NASDAQ:DISCA, NASDAQ:DISCK) stock and ViacomCBS (NASDAQ:VIAC) stock, among others.
The big hits to some streaming stocks comes from news that Wells Fargo is downgrading VIAC and DISCA stocks. The decision comes from the sentiment that both of the companies have been greatly overvalued.
Viacom saw massive upswings in the last year to date, appreciating by 160%. However, the Wells Fargo note remarks that the stock’s gains were through a period of volatility. The stock is likely returning to normal levels, and the analyst downgraded VIAC to underweight.
Likewise, a separate note makes these remarks about Discovery. After a period of volatility, DISCA stock is being downgraded to equal weight and will likely settle at lower levels.
VIAC stock is down by 25% this morning. DISCA stock is down by over 20%. The negative sentiment around these two major players is also dragging down Roku (NASDAQ:ROKU) stock, which has lost over 5% today.
The Bottom Line on Streaming Stocks
The negative sentiment surrounding streaming stocks is due in large part to the over-saturation of the industry. Every company from NBC to AT&T (NYSE:T) has seen the great success of Netflix (NASDAQ:NFLX) and Hulu and wants to get a piece of the action. What started as a convenient way to aggregate shows without cable is turning into a mess of what are essentially decentralized cable packages.
Not to mention, streaming services cost a lot of money to run. So much, in fact, that media businesses can’t fund their streaming operations with their traditional media profits alone.
So, companies like Viacom and Discovery are sinking hundreds of millions of dollars trying to chase down industry leaders in an over-saturated market. As analysts realize what is happening, these streaming stocks are taking a hit.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article.