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Home Growth Companies Here's Why Home Entertainment is a Big Trend to Watch for

Here’s Why Home Entertainment is a Big Trend to Watch for

Technology has enabled new forms of entertainment.

Just 15 years ago, it would be inconceivable to believe that you could watch a movie on demand from home, or plug into a massively multiplayer online game.

Advancements in connectivity, along with the introduction of smartphones, have changed how we interact with others.

The pandemic has resulted in many people working or studying from home, accelerating a trend that had already been growing steadily for years.

With work habits set to evolve into a hybrid model where many will end up spending much more time at home, demand for home entertainment options should accelerate.

But just what constitutes home entertainment, and how can investors latch on to this big growth phenomenon?

Video on demand

Watching a movie at the cinema involves quite a bit of preparation.

You’d have to check the date and time slot that’s available, locate a cinema convenient to where you live, and squeeze into a movie hall with a horde of other patrons.

Or if you wanted to catch an old movie on cable TV, you would need to pre-record it and then watch it after the time slot has passed.

All this has now changed with the introduction of video-on-demand.

Now, you can watch any movie you want from a vast library at your convenience and in the comfort of your home.

Netflix (NASDAQ: NFLX) has been providing this service for more than a decade, and the company saw demand spike significantly as the pandemic forced lockdowns and movement restrictions.

The company crossed the 200 million subscriber mark in the fourth quarter of 2020 with the addition of a record 37 million paid memberships during the year.

Revenue for 2020 rose 24% year on year to US$25 billion, while net income surged 48% year on year to US$2.8 billion.

Another company that has its roots in home entertainment and media is Roku (NASDAQ: ROKU).

Roku is a spin-off from Netflix and acts as a middleman, connecting users and content publishers.

The company also sells streaming players, TV-related audio devices and acts as an advertising platform.

Roku witnessed a surge in revenue for its third quarter 2020 earnings ended 30 September 2020.

Total net revenue for the quarter surged 73% year on year to US$452 million and the business logged a net profit of US$13 million, reversing from a loss of US$25.2 million a year ago.

The company added 2.9 million accounts to reach 46 million, while average revenue per user rose 20% year on year to US$27.

Ready player one?

Online gaming is another aspect of home entertainment that has grown by leaps and bounds over the years.

Increased smartphone proliferation and improved connectivity have contributed to an explosion in online games in the last decade.

The global gaming industry was valued at US$162 billion in 2020 and is estimated to be worth US$296 billion by 2026, clocking up annual growth of 10.5% over the period.

One of the leading players in this sector is Tencent Holdings (SEHK: 0700).

One of the largest social media, e-commerce and gaming companies in the world, Tencent offers instant messaging services such as Weixin and QQ and is worth around HK$7.2 trillion.

Tencent’s online gaming division has several notable bestsellers such as Honour of Kings and just released Brawl Stars which was ranked number one in China’s iOS download chart in June last year.

The company reported a solid set of earnings for its third quarter of 2020, with revenue up 29% year on year to RMB 125.4 billion and net profit up 32% year on year to RMB 32.3 billion.

Gaming took up one-third of Tencent’s revenue.

Another player in the online gaming scene is Sea Limited (NYSE: SE).

Sea is a home-grown internet company that has three major divisions: e-commerce, digital entertainment and online payments.

The company’s gaming division saw revenue soaring 73% year on year to US$569 million.

Quarterly paying users more than doubled to 65.3 million, and Sea’s self-developed game Free Fire continued to be the highest-grossing mobile game in both Latin America and Southeast Asia.

Get Smart: Strong tailwinds

The conclusion is clear.

Home entertainment is set to continue growing as streaming TV and online gaming continue to grow in popularity.

It’s not too late for investors to hop on this fast-moving train as these sectors are poised to enjoy multi-year growth.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.