Wall Street says digital video will surpass traditional TV this year.‍

After more than a decade of battling to capture viewers' attention - and dollars - streaming companies may finally be able to get the edge over traditional TV this year after more than a decade of struggle. If that's the case, investors could be forced to rethink their long-term strategy for how they plan to play the streaming wars in the future.

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There is a recent prediction from Trade Algo that American adults will spend more time streaming digital videos on platforms such as Netflix and TikTok in 2023 than they will spend watching traditional television for the first time in history.

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In findings, the findings indicate that linear TV - namely traditional television with scheduled programming - is expected to account for less than half of all daily television viewing this year, with digital video viewing jumping to more than 52% of the total.

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In spite of this potential milestone, a recent jump in streaming stock prices may signal more bullish sentiment toward the sector as a whole, especially after last year's market carnage, which resulted in giants like Netflix tumbling by 51% on a year-over-year basis.

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At the close of trade on Thursday, Netflix shares had gained 9% year to date, while Disney, Paramount, and Warner Bros. Discovery had gained about 17%, 39%, and 66%, respectively, in the same period.

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The streaming industry faced a major challenge during the pandemic as customers cut the cord and cut their cable TV subscriptions. As the streaming industry continues to grow, competition between the players is intensifying.

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Almost every major company that has been seeking a stake in the streaming war has launched a product at some point in the past few years. Now that the early stages of the battle are behind us, the biggest media companies are now competing for consumer dollars, while Wall Street - and investors - have begun paying much more attention to metrics like average revenue per user, revenue per user per day, and profitability.

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Here are some of Wall Street's top streaming picks for investors considering playing the streaming game in the months ahead, as cord-cutting is set to make big gains this year.

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Picking through the streaming giants

A discussion of the streaming industry cannot be complete without mentioning Netflix in some form or another. It was reported last year that the streaming giant, known for titles such as "Squid Game" and "Stranger Things," had lost its first subscribers in more than a decade following the announcement of its first subscriber decline.

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As a result of this incident, the company has implemented a new advertising tier and is planning to crack down on password sharing in the months to come. It was also announced last month that Netflix had posted blowout subscriber numbers for its fourth quarter and that Reed Hastings would step down as chief executive officer.

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Despite Netflix's impressive performance, Wall Street is divided about the company's prospects. There are about 40% of analysts recommend buying the stock, and the consensus price target implies a 7% increase in price from Wednesday's close.

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Netflix shares fell Thursday after Trade Algo reported that the company was slashing prices in more than 30 countries. Netflix confirmed to Trade Algo that some of its country-specific pricing plans are being updated.

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Disney is another clear-cut behemoth in the space, and it has one of the highest buy ratings on Wall Street as a result of its size. There are roughly 74% of analysts think the stock should be bought, with the consensus price target suggesting a gain of nearly 24% from Wednesday's closing price. There has already been an increase of 17% in shares of the company this year.

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Similarly to Netflix, Disney has undergone a number of management changes of its own recently, announcing the abrupt departure of CEO Bob Chapek and the return of the company's CEO Bob Iger in November last year.

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The activist investor Nelson Peltz staged a proxy fight against Disney earlier this year, but he dropped the campaign after the company announced that it was reorganizing its business and that thousands of jobs would be cut as a result. During the recent quarter, Disney reported a smaller-than-expected loss of subscribers in its streaming business.

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Despite the challenges of the streaming industry, smaller streaming players are also gaining traction despite tough competition. Goldman Sachs' Brett Feldman named Warner Bros. Discovery a top media pick with one of the best risk-reward ratios in a January note to clients.

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This spring, Discovery+, and HBO Max will combine their offerings into a single streaming service, which Feldman said should provide a better understanding of the growth potential of the company, which was formed through a merger between Discovery and WarnerMedia last year.

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The consensus price target implied about a 33% upside from Wednesday's close for the stock, with slightly under half of analysts rating it a buy. The stock’s already surged nearly 66% this year after a roughly 60% tumble in 2022.

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“Although the media company faces the same secular and cyclical challenges as its peers, we believe that the company is best positioned to grow EBITDA, improve free cash flow, and drive balance sheet deleveraging throughout the integration of WarnerMedia and as it sees synergies ramp,” he stated.

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It has been suggested by Bank of America's Jessica Ehrlich in a December note to clients that delivering a better content mix and improved user interface could “drive churn down and engagement up.”

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Under-the-radar advertising beneficiaries

It is true that streaming giants may seem the best positioned to capitalize on cord-cutting trends, but they aren't the only ones to do so.

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The Needham Group's Laura Martin highlighted Magnite as an online advertising technology company poised to benefit from the growth of connected TV in a note to clients this week. A majority of analysts say it is a good idea to buy shares, with the stock poised to rally 11% from Wednesday's close.

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"MGNI is paid based on a percentage of total ad spending and experts predict that programmatic advertising will grow rapidly in the United States over the next 3 years," she wrote. Magnite's CEO, Martin Martin, highlighted how the pandemic has transformed consumer viewing and has helped increase Magnite's total addressable market.

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After falling over 39% last year, the stock is up 7% this year.

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The Trade Desk is another advertising company that Wall Street is bullish on, with more than 60% of analysts rating it as a buy by the end of the year.

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In a note sent to clients in September, Macquarie Research described the company as one of the most significant winners in the ad tech industry and one of the biggest beneficiaries of the next phase of connected TV growth.

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There has been an increase of more than 25 percent in the stock price this year. A 51% decline was recorded in 2022. Shares are expected to rise almost 23% from Wednesday's close if the consensus price target is met.

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“Programmatic demand for private marketplaces is rising as buyers drive demand for more ad inventory - and this is TTD's wheelhouse,” wrote analyst Tim Nollen in his report, adding that he believes the company will eventually become a Netflix advertiser.

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“The company was built in the right way, and we believe that the company was strategically aligned where the dollars flow on the demand side, via the global media buying agencies,” he said.

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