Stocks With Subscription Based Revenue Offer Inflation Protection

Investors should be amazed at where consumer priorities lie regarding monthly payments. Besides ensuring the mortgage and car are paid, consumers will likely emphasize subscriptions. The evidence behind this belief? Financial stocks like Bank of America reported rising delinquency rates on credit cards with declining FICO scores. At the same time, companies like Netflix Inc. NASDAQ: NFLX saw 16% growth in global paid memberships. 

Key Points

  • Three stocks could become clear targets for investors looking to keep up - or beat - inflation in today's economy.
  • By deriving all earnings from subscriptions, slight price increases could represent additional millions in the top line.
  • Analysts and markets expect a double-digit upside because of this predictability and growth potential.
  • 5 stocks we like better than T-Mobile US

Despite the U.S. economy suffering from stagflation, defined as low economic growth with high inflation, consumers still find a way to fit these subscriptions into their budgets. Because of this tendency, investors could consider such businesses part of the consumer staples sector rather than the consumer discretionary group.

Knowing that consumers will likely keep paying for their subscription memberships, investors highly value revenue for such businesses, especially amid an uncertain economic environment. Stocks like Spotify Technology NYSE: SPOT, T-Mobile US Inc. NASDAQ: TMUS, and even Netflix could prove outperformers in the coming quarter.

Inflation Protection? Yes Please

Subscription-based businesses not only achieve predictable cash flows, making them easier to value for Wall Street analysts and more attractive for investors, but they are also able to quickly shrug off the effects of high inflation by raising prices across the board. 

With 269.6 million global subscribers, Netflix could raise prices by $1 and immediately add nearly $270 million to the top line. Likewise, Spotify’s 239 million users could have the same effect on the company’s financials, especially knowing users will try to avoid the pain of vibe-cutting advertisements. 


Whether the economy is booming or busting, people will likely always find a way to pay their phone bill because consumers won’t be able to prospect for jobs without a phone (in the case of a bad economy).

With 119 million users as of the fourth quarter of 2023, T-Mobile could justify a few extra million in revenue by merely keeping up with inflation. 

All three of these stocks can protect their investors from inflation just by raising monthly subscriptions to their users. Because of the quality and reliability of these revenues, markets are willing to pay a premium valuation for these stocks, measured on a price-to-sales (P/S) basis. 

It’s All About Growth, Steady Growth

T-Mobile US Today

T-Mobile US, Inc. stock logo
TMUSTMUS 90-day performance
T-Mobile US
$164.00
+0.42 (+0.26%)
(As of 05/17/2024 ET)
52-Week Range
$124.92
$168.64
Dividend Yield
1.59%
P/E Ratio
22.31
Price Target
$186.33
Compared to its peers in the communication industry, T-Mobile stock commands a premium of 50% through its 2.4x P/S versus the sector’s 1.6x average.

Spotify follows suit by trading at a 3.9x multiple, which is 290% above the radio and broadcasting industry’s average P/S valuation of 1.0x. Last but not least, investors can see this trend in Netflix’s 7.9x P/S multiple, which is 192% above the streaming industry’s 2.7x.

Markets value these companies at a premium for their steady revenue sources and their future expected growth rates. Based on an earnings per share (EPS) basis, analysts believe Netflix's stock could deliver up to 21.2% growth in the next 12 months. 

Spotify could be set to deliver 41.4% EPS growth this year, which gives investors a leg up above inflation in the U.S. and ensures that this potential investment could outperform the nation's lackluster GDP growth of 1.6% in the past quarter.

In another double-digit growth clip, T-Mobile expects to deliver 24.8% EPS growth despite the inflation-choked U.S. consumer. 

Consumer sentiment declined in April, bringing the index halfway to its all-time low. However, consumers still find enough reasons to keep these companies flowing with steady cash flows, which is why Wall Street keeps them in high regard.

Wall Street’s Take

Spotify Technology Today

Spotify Technology S.A. stock logo
SPOTSPOT 90-day performance
Spotify Technology
$302.82
+4.70 (+1.58%)
(As of 05/17/2024 ET)
52-Week Range
$129.23
$319.30
Price Target
$306.42
Spotify shares trade at 91% of their 52-week high, showing investors that bullish momentum still rules the media company. Analysts at Bank of America see a valuation for Spotify up to $370 a share, calling for as much as 27.5% upside from where the stock trades today. 

The optimism spills over to Netflix now that the stock has pushed back up to 96% of its 52-week high after a recent earnings hiccup. Recovering its bullish beat, the stock earned an $800 price target from Pivotal Research. To prove these valuations right, the stock must rally 30.5% from where it sits today.

Who knew phones could be this exciting? Analysts at TD Cowen see a valuation of $202 for T-Mobile stock, or 25% upside from today’s price. Of course, trading at 96% of its 52-week high helped analysts feel more comfortable backing this winner. 

The one theme investors need to focus on is predictable revenue; analysts and markets aren’t afraid to bid companies like these up, particularly since nothing else is lining up to beat stagflation.

→ Next President (Not Trump. Not Biden.) (From The Freeport Society) (Ad)

Should you invest $1,000 in T-Mobile US right now?

Before you consider T-Mobile US, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and T-Mobile US wasn't on the list.

While T-Mobile US currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

10 "Recession Proof" Stocks That Will Thrive in Any Market Cover

Which stocks are likely to thrive in today's challenging market? Click the link below and we'll send you MarketBeat's list of ten stocks that will drive in any economic environment.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Spotify Technology (SPOT)
4.0308 of 5 stars
$302.82+1.6%N/A-451.96Moderate Buy$306.42
Netflix (NFLX)
4.1789 of 5 stars
$621.10+1.7%N/A43.10Moderate Buy$630.53
T-Mobile US (TMUS)
4.9372 of 5 stars
$164.00+0.3%1.59%22.31Buy$186.33
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


Featured Articles and Offers

Search Headlines: