Netflix and Spotify Stocks Are Gaining. How the Streamers Can Stay Strong.

Netflix reports second-quarter earnings on July 17. (Kyle Grillot/Bloomberg)

Netflix and Spotify Technology stocks have far outperformed the broader stock market this year. Analysts see that trend continuing as people keep spending on subscription entertainment platforms.

Shares of the video streaming platform Netflix have soared 44% this year. While investors feared how tariffs might impact consumer spending, Netflix provided strong guidance in its first-quarter earnings report in April. Management said there was “nothing really significant to note” in terms of how economic uncertainty may materially impact the business.

Streaming now accounts for more viewing hours than broadcast and cable combined, the research firm Nielsen recently reported. Of the streaming services, Alphabet’s Youtube captured the most viewing time in May, followed by Netflix.

Netflix’s strong performance came from strategic decisions the company has recently made, such as cracking down on password sharing and introducing a lower priced ad-tier.

To keep its momentum going, Netflix will have to enlist new subscribers, while also keeping its current subscribers interested by pushing out more popular content and introducing new live events.

“Netflix’s strong content slate is expected to continuously improve further with investments in inventory production and acquisition, enabling the platform to retain existing subscribers and attract new users globally,” Canaccord Genuity analyst Maria Ripps wrote on Tuesday. She raised her price target on Netflix from $1,380 to $1,525 and reiterated her Buy rating.

The streaming platform Spotify, which charges monthly subscription fees for ad-free access to music, podcasts, and audiobooks, is in a similarly strong position. Its shares have jumped 63% this year, helped by a larger-than-expected increase in its base of premium subscribers in the first quarter. The number of monthly active Spotify users also grew in line with analysts’ estimates.

Just like Netflix, Spotify has to prove it can continue to grow from here.

“With access to over 100 million tracks, 6.5 million podcasts, and 350,000 audiobooks and a superior recommendation algorithm that greatly enhances discovery, we think Spotify’s subscription value proposition significantly outweighs its cost even after recent price increases, and we see room for further price adjustments,” Ripps wrote. She raised her price target on Spotify to $850 from $775 and maintained a Buy rating.

Shares of Netflix were down 0.9% Wednesday to $1,281.85, while Spotify was up 0.1% to $722.87. The S&P 500, which has gained 5.7% this year, was rising 0.3%.

Investors may be feeling confident that both companies will see more subscriber and revenue growth. But they should also be aware that both stocks are expensive: Netflix is currently trading at 45.75 times earnings expected over the next 12 months, while Spotify is trading at 59.43 times. That is much higher than the 22.17 times forward earnings valuation of the S&P 500.

Netflix is scheduled to report second-quarter earnings on July 17. Spotify will report on July 29. Wall Street will get more clarity then as to whether or not these streamers are maintaining their promising growth.

Write to Angela Palumbo at angela.palumbo@dowjones.com