Gray TV Beats Netflix

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-1045286234&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/1045286234/960×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; .

Gray Television, Inc. is beating Netflix big time on Wall Street, over the last twelve months.

Since last March, Gray TV&a;rsquo;s shares have gained 61.49%, while Netflix&a;rsquo;s shares have gained 8.86% (see chart).

That&a;rsquo;s a big change from previous years, when Netflix&a;rsquo;s stock beat Gray TV&a;rsquo;s by a big margin. In fact, Netflix&a;rsquo;s stock had been among the top winners in Wall Street over several years.

&l;img class=&q;size-large wp-image-19634&q; src=&q;http://blogs-images.forbes.com/panosmourdoukoutas/files/2019/03/koyfin_20190310_081528473-1200×600.jpg?width=960&q; alt=&q;&q; data-height=&q;600&q; data-width=&q;1200&q;&g; Gray TV vs Netflix Shares On Wall Street

Gray TV&a;rsquo;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&l;span&g;. As &a;nbsp;of February, 2017, it owned and operated television stations in 57 markets, covering 10.4% of US households, according to its 2017 Annual Report.&l;/span&g;

&l;span&g;The company has been growing by &a;ldquo;leveraging its diverse national footprint broadcasting over 200 separate programming streams,&a;rdquo; according to the report. Like 100 affiliates of the &a;ldquo;Big Four&a;rdquo; 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.&l;/span&g;

&l;span&g;&a;ldquo;We believe there are significant advantages in operating the #1 or #2 television broadcasting stations in a local market,&a;rdquo; says the company&a;rsquo;s 2017 report. &a;ldquo;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.&a;rdquo;&l;/span&g;

&l;span&g;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.&l;/span&g;

&l;span&g;That&a;rsquo;s a radically different strategy from Netflix&a;rsquo;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.&l;/span&g;

&l;span&g;As it turns out, Gray TV&a;rsquo;s business model is more profitable than Netflix&a;rsquo;s, as reflected in the operating margins of the two companies. Gray TV&a;rsquo;s Gross Margins are 45% compared to 36.9% of Netflix&a;rsquo;s (see chart).&l;/span&g;

&l;img class=&q;size-large wp-image-19635&q; src=&q;http://blogs-images.forbes.com/panosmourdoukoutas/files/2019/03/koyfin_20190310_083131486-1200×600.jpg?width=960&q; alt=&q;&q; data-height=&q;600&q; data-width=&q;1200&q;&g; Gray TV and Netflix Gross Margins

&l;span&g;Meanwhile, Gray TV&a;rsquo;s low valuation (see chart) make it a better buy than Netflix for conservative investors.&l;/span&g;

&l;img class=&q;size-large wp-image-19637&q; src=&q;http://blogs-images.forbes.com/panosmourdoukoutas/files/2019/03/koyfin_20190310_083331215-1200×600.jpg?width=960&q; alt=&q;&q; data-height=&q;600&q; data-width=&q;1200&q;&g; Gray TV and Netflix Valuation

&l;span&g;&a;nbsp;&l;/span&g;

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