A leading fund manager is increasing exposure to the streaming market across several mutual funds.
After including leader Netflix Inc. NFLX for exposure, Oakmark Funds is betting on another streaming platform — HBO Max from Warner Bros. Discovery WBD.
"We think a big part of the value at Warner Bros. is its content library and library values have been going up and up over time," Nygren said.
Investors looking at the streaming market have to differentiate between short term factors like what the ad market is likely to be over the year and the long-term factor of how desirable the content the produce is to consumers, Nygren explained.
“We believe that one way or another the company will be successful at monetizing that (content),” he added, expecting HBO Max to grow and become "a very profitable business."
Time Warner assets weren't “very well managed” under AT&T Inc T, Nygren says. After the Discovery deal, Nygren became bullish and added the stock to several Oakmark Funds.
AT&T acquired Time Warner for $85 billion. The media assets were formed into WarnerMedia and spunoff in a $43 billion transaction with Discovery.
Nygren cites price-to-earnings ratio of 8x, synergies from the spinoff coming and the company’s direct to consumer efforts for making HBO Max “one of the likely streaming leaders.”
Why It’s Important: Warner Bros. Discovery represents 3% of the Oakmark Select Fund that invests in mid-cap and large cap U.S. companies.
Netflix is the fourth largest holding in the fund at 5.5%.
“We think the company is going to get back into a good revenue growth mode,” Nygren said of Netflix, praising the company's password sharing crackdowns and ad-supported plans.
“We expect the company will be able to achieve double digit revenue growth," he added.
Nygren said Netflix is “not that expensive anymore” with a price to earnings ratio going to sub 20 in the next several years.
“Most importantly consumers love Netflix.”
Along with Warner Bros. Discovery being a recent addition, Oakmark has also taken a position in Fortune Brands Home & Security FBHS.
Nygren said the company is largely concentrated in the repair and remodel businesses, insulating it from home construction concerns. An upcoming spinoff of the company’s cabinet business could also unlock value.
WBD Price Action: Warner Bros. Discovery shares are up 2% to $12.73 on Friday.
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