Gray Television, Inc. is beating Netflix big time on Wall Street, over the last twelve months.
Since last March, Gray TV’s shares have gained 61.49%, while Netflix’s shares have gained 8.86% (see chart).
That’s a big change from previous years, when Netflix’s stock beat Gray TV’s by a big margin. In fact, Netflix’s stock had been among the top winners in Wall Street over several years.
Gray TV’s lead over Netflix may come as a surprise to the momentum crowd on Wall Street. It is a traditional television and broadcasting company that Netflix seeks to replace with streaming services.
What could explain the change in fortunes between the two companies?
Multi-localization. Gray TV has been busy acquiring local TV stations around the US. As of February, 2017, it owned and operated television stations in 57 markets, covering 10.4% of US households, according to its 2017 Annual Report.
The company has been growing by “leveraging its diverse national footprint broadcasting over 200 separate programming streams,” according to the report. Like 100 affiliates of the “Big Four” networks, CBS Network, the NBC Network, the ABC Network, and the FOX Network. This diversification has allowed Gray TV to achieve leadership positions in local markets.
“We believe there are significant advantages in operating the #1 or #2 television broadcasting stations in a local market,” says the company’s 2017 report. “Strong audience and market share allows us to enhance our advertising revenue through price discipline and leadership. We believe a top-rated news platform is critical to capturing incremental sponsorship and political advertising revenue.”
Meanwhile, Gray TV has been expanding the scale and scope of its operations by acquiring local TV stations. For the period 2013-17, for instance, the company made 23 acquisitions, adding a net total of 51 television stations — in 31 markets — to its operations, including 26 new television markets.
That’s a radically different strategy from Netflix’s strategy, which relies on globalization rather than localization; and on subscription revenues rather than advertising monetization model. As of Q4 2018, Netflix had over 148 million subscribers worldwide, according to Statista.
As it turns out, Gray TV’s business model is more profitable than Netflix’s, as reflected in the operating margins of the two companies. Gray TV’s Gross Margins are 45% compared to 36.9% of Netflix’s (see chart).
Meanwhile, Gray TV’s low valuation (see chart) make it a better buy than Netflix for conservative investors.