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Netflix Has the Most Subscribers, but Is It the Strongest Streaming Stock to Own?

There's no question that Netflix (NASDAQ: NFLX) dominates the streaming landscape. The entertainment giant pioneered the technology, and nearly every legacy media company has since followed it.

Netflix now has more than 260 million subscribers, and it's the only major streaming service in the U.S. that is profitable, showing the advantage of being a pure-play streaming company rather than a legacy media company transitioning from linear TV and streaming.

However, in the stock market, biggest isn't always best. Let's look at whether Netflix is the best streaming stock to own right now with some help from the Motley Fool Research team.

A couple sitting on a couch watching TV
Image source: Getty Images.

The state of the streaming industry

A recent streaming survey from The Motley Fool indicates some fatigue with streaming entertainment as well as slowing growth in the industry.

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For example, 62% of respondents think that there are too many streaming options. That's reflective of a streaming market that's increasingly crowded with both streaming-only players such as Netflix, Amazon, and Apple, as well as legacy-owned services like Hulu, Disney+, ESPN+, Peacock, Paramount+, Max, and Discovery+.

It's understandable why audiences feel frustrated with the large number of platforms. It makes it hard to find something to watch, and it means you need to pay for several services if you want to be able to watch popular content, such as the latest hit show, or something like Thursday Night Football, which is exclusively on Prime Video.

The survey also found that viewers are less interested in adding new streaming services, though they're still adding more than they're getting rid of right now. Forty-six percent of respondents said they were subscribed to more streaming services than they were a year earlier, while 37% said they were subscribed to fewer. That was a substantial increase from just 13% who said they had fewer streaming services from the year before in 2022.

The biggest complaint respondents had was that they wanted their shows on one platform. That was followed by its being too hard to keep track of which streaming service had the content they wanted, and that it's getting too expensive to pay for the content they want.

Netflix is a good stock, but there's a better pick

After its fourth-quarter earnings report, Netflix looks as strong as it ever has. The company added 13.1 million subscribers in the fourth quarter, a record for that quarter. Results topped estimates, and it raised its operating margin forecast for 2024.

However, the survey, which includes only the U.S., indicates that streaming customers are growing less willing to add new services, meaning that there may be a ceiling on Netflix's subscriber growth, or that the streaming sector may be entering a zero-sum game, where one service's gains come at the expense of another.

While Netflix looks as if it could easily outperform the market from here, there's another streaming stock with more upside potential: Roku (NASDAQ: ROKU). Roku is the leading streaming distribution platform in the U.S., with more than 75 million active accounts, and it helps solve the biggest complaints of the respondents, since Roku is designed to make it easy to stream the shows you want to watch.

For example, Roku offers a global search so that users can search for content across multiple services, solving the biggest complaints from the survey. Roku's platform makes it feel as if all of the content is on one platform, and it makes it easier to keep track of which shows are on which service.

Similarly, if audiences are showing fatigue from adding more streaming services, investors are likely to find more opportunities in Roku, which makes streaming easier and has a business model that should benefit from increased viewing time but doesn't require additional subscriptions. Roku also looks poised to capitalize on the boom in ad-based streaming, as it typically takes 30% of advertising inventory from its streaming partners.

Finally, Roku appears to have significantly more upside potential than Netflix or the other streaming services as the company seems in the middle of inflection into profitability after several rounds of layoffs and a recovery in advertising demand. Given the preferences of U.S. streaming audiences, Roku looks like the best streaming stock to buy right now.

Should you invest $1,000 in Roku right now?

Before you buy stock in Roku, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Roku wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of February 12, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon, Netflix, and Roku. The Motley Fool has positions in and recommends Amazon, Apple, Netflix, and Roku. The Motley Fool has a disclosure policy.

Netflix Has the Most Subscribers, but Is It the Strongest Streaming Stock to Own? was originally published by The Motley Fool