Walt Disney vs Netflix: A Streaming Stock Analysis
In the expansive realm of the media and entertainment industry, Walt Disney remains a force to be reckoned with, boasting a legacy that spans close to a century. The introduction of the Disney+ streaming service in November 2019 solidified the company's commitment to dominating video entertainment, attracting a subscriber base of 111.3 million as of December 30, 2023. This impressive figure underscores Disney+'s significance in the streaming market.
However, those eyeing a potentially lucrative addition to their investment portfolios might want to look beyond Disney in favor of Netflix (NASDAQ: NFLX). Netflix's extraordinary growth trajectory outshines many, welcoming 29.5 million new subscribers in 2023 alone, thus elevating its total subscriber count to 260.3 million. This expansion speaks volumes about Netflix’s unceasing effort to enlarge its membership base.
Contrasting with Netflix's upbeat growth, Disney+ experienced a minor dip in its core subscriber numbers (excluding Hotstar) by 1% quarter-over-quarter in the first fiscal quarter of 2024, ending on December 30. An uptick in membership cancellations, triggered by price increases, marked this slight decline.
On the contrary, Netflix's robust pricing power stands out, as evidenced by the addition of 2.8 million net new users in the U.S. and Canada in Q4 following a $2 hike in its Basic plan price last October. Even more commendable is a 3% rise in average revenue per user during this period, signaling Netflix's stronghold amidst price escalations, a stark contrast to Disney+'s prevailing hurdles.
When it comes to profitability, Netflix’s performance spectacularly surpasses Disney’s. Disney disclosed a $138 million operating loss for its direct-to-consumer operations in the last fiscal quarter, a pinch better than the nearly $1 billion loss in Q1 2023. Despite Disney's endeavor to trim expenses by $7.5 billion by the fiscal year’s end, its streaming services are only anticipated to hit the profitability mark by the fourth quarter of fiscal 2024.
Netflix’s fiscal health, however, paints a brighter picture. The streaming giant reported almost $7 billion in operating income on $33.7 billion of revenue in 2023, flaunting a 21% margin, with an expectancy to attain a 24% operating margin this year. As the streaming industry’s first mover, Netflix has achieved a scale and profitability that Disney is yet to match, forecasting a $6 billion free cash flow in 2024.
With shares appreciating by 178% over the past 18 months, Netflix commands a higher valuation than Disney, sporting a forward price-to-earnings ratio of 36.9. This premium, however, might be a small price for investors keen on owning a piece of the leading enterprise in the streaming sector.
Analyst comment
This news can be evaluated as negative for Disney and positive for Netflix. The market is expected to favor Netflix due to its robust growth, pricing power, profitability, and strong performance in the streaming industry. Netflix is likely to continue expanding its subscriber base and generating high revenue and operating income, while Disney is facing challenges with declining subscriber numbers and losses in its streaming services. As a result, Netflix’s stock is expected to perform better than Disney’s in the market.
