Is Disney Really A Rival To Netflix?

Netflix has become one of the few companies to thrive during this pandemic-driven downturn, while its biggest rival is floundering. But should you invest?

Despite the ever-looming threat of this pandemic and the inevitable recession to follow, there is actually a lot to be optimistic about. In countries where social distancing has been upheld, infection rates are slowing, Gilead Sciences (NASDAQ: GILD) has soared 13% after-hours because its Remdesevir treatment is showing promising signs on COVID-19 patients, and (in Ireland anyway) the sun is shining. 

There have been worse days over the past 3 months, you can be sure, but one company that is having a great time right now is Netflix (NASDAQ: NFLX). While the rest of the world is forced into isolation, with nothing to do but count the days until we can become a fully-functioning society once more, Netflix stock is hitting new all-time highs. 

The very isolation forced upon us is exactly what’s causing this jump. With viewers turning to hits like true-crime documentary ‘Tiger King’ and comfort-food reruns like ‘The Office’ and ‘Cheers’, Netflix is seeing a spike in new subscriptions and ratings, with its stock price jumping 47% in the last month alone. 

What about ‘Netflix-killer’ Disney?

This was supposed to be the year that the ‘happiest place on earth’ put Netflix in the ground, but Disney (NYSE: DIS) is far from a happy place right now. Its stock has fallen 20% in the past year and is actually down 3% in the past 5 years. Compare this with the 386% growth of Netflix in that time period, and we are left scratching our heads, especially when you consider how massive Disney has become, with 2019 being a standout year: 

  • A record revenue take of $69.57 billion.
  • An unprecedented, record-smashing $12 billion box-office haul.
  • A record net income of $11.05 billion. 
  • It launched its hugely popular Disney+ streaming service in November, which just hit 50 million subscribers. 
  • Record Parks, Experiences and Products revenue of $26.2 billion. 

This comparison is a little bit unfair though. Netflix was a small company that experienced massive growth since its IPO in 2002, while Disney has been around for nearly 100 years. For most of its lifetime, Netflix has been playing catch up. 

Four months into 2020 though and people are already discussing a ludicrous, albeit financially possible, takeover bid from Apple (NASDAQ: AAPL) for Disney. Have things really gotten that bad? 

Is Netflix the next Disney? 

Absolutely not!

I’m going to nip my own ‘baity’ sub-heading in the bud straight off the bat, but I’m sure this is not the last time you’ll see writers comparing Netflix with ‘the happiest place on earth’. 

However, as of April 17, 2020, Netflix is the higher valued company of the two at $193 billion, versus Disney’s $184 billion. The same year that Netflix was to lose its crown as the king of streaming, its deadliest rival has suddenly turned lame. Sure there are other players now, such as Apple, Time Warners (NYSE: TWX) HBO Now, Amazon Prime (NASDAQ: AMZN), and Comcast’s (NASDAQ: CMCSA) ‘Peacock’, to name a few, but Disney was the only real immediate threat. 

And all the while, like a pilot fish latching to a shark for food, brand-agnostic platform Roku (NASDAQ: ROKU) will ride the coattails of the streaming wars and grow, already doubling the last month alone.

But is Netflix more valuable than Disney?

Disney is a massive conglomerate encompassing film and television production, multi-billion dollar theme parks and cruise lines, massive swathes of real estate, endless merchandise lines, its streaming service, and much more. 

Netflix on the other hand, creates award-winning content and has the most user-friendly streaming platform on the market. No more, no less, and that’s what works for them. Its total revenue in 2019 was $20.15 billion with net income of $1.86 billion. This is fantastic for Netflix, but doesn’t even put it in Disney’s ballpark. It’s the same broken logic that pits Spotify (NYSE: SPOT) against Apple Music. 

Yes, they are competing services, but not competing companies. 

Just as Apple is so much more than Apple Music, Disney is so much more than Disney+. The problem though, is that Apple’s other services aren’t floundering, while Disney is sitting dead in the water as this pandemic rages. And all the while, Netflix remains the best at what it does, and that’s all that matters to investors. 

Netflix, on the other hand, is exactly what Wall Street wants right now: a high growth tech company with a subscription service. Meanwhile, Disney’s more traditional brick and mortar operations to explain the differences in valuation compared to respective revenue.

So, is Netflix a good investment?

I’ll be the first to admit that I’ve had my doubts about Netflix and its growth potential, especially in its saturated home market in the U.S., but those fears have been allayed for now. While massive companies such as Microsoft (NASDAQ: MSFT), Tesla (NASDAQ: TSLA), and Nike (NYSE: NKE) have found themselves at the mercy of shutdowns caused by the virus, Netflix has thrived. 

Some of its content will, of course, be delayed, as will every other studio, but it is sitting on a vast bank of varied content, as well as hundreds of its own original shows and movies from all genres and age groups. This economic downturn has shown it can thrive in a bear market just as it did in the eleven-year bull run that just ended. People will still need entertainment, and it is traditional cable TV that will be the first to go, long before things get bad enough to end your Netflix subscription.

Likewise, Disney’s massive losses which will occur this year will have a massive knock-on effect upon its ability to divest funds to original shows on Disney+, such as the hugely successful ‘Mandalorian’ series, and its other Star Wars and Marvel-themed content. 

Right now, Netflix is probably one of the most promising investments out there, and it’s not showing any signs of slowing, while its main competition reels. We could be in for another decade of Netflix dominance.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Disney and Netflix. Read our full disclosure policy here.