Netflix and Disney+ have experienced hardships and triumphs this year, so let’s discuss why these two entertainment companies have come out on top in 2020.
Dec. 17, 2020
The pandemic has had two very different impacts on the entertainment industry as a whole. On the one hand, movie theatres and theme parks closures resulted in huge losses as coronavirus restrictions were enforced. Yet, on the other hand, streaming services experienced a massive hike in subscriber numbers as people were told to stay at home and therefore needed entertaining.
1. Netflix
The first company on our list is the king of the streaming world, Netflix (NASDAQ: NFLX). Subscriber growth may have slowed down over the summer, but this year is still a record-breaking growth event in the company’s history. Netflix has benefited greatly from the cable cord-cutting phenomena over recent years, and now its profiting from the pandemic.
As the company warned, its subscription growth rate did slow down in Q3 due to the easing of lockdown restrictions. Netflix reported 195.2 million subscribers, up 23.3% year-over-year. However, these numbers reflected a major drop when compared to 10.1 million in 2Q and 15.8 million in Q1.
The pandemic did negatively affect its production times for a few months, which resulted in positive cash flows for the first time since 2014. This goes against the ‘Stranger Things’ producer business model, as it prefers to spend every penny producing original content, like ‘Stranger Things’ and ‘The Crown’ as the reason the streaming service retains so many of its viewers is due to the exclusive films and shows. Intentional profits will come after a few years, which will surely attract investors who value traditional investments.
What concerns investors about Netflix is the tense competition from rival Disney+, AT&T’s HBO Max, and Amazon Prime Video. To stay ahead of the curve, Netflix is focusing on new opportunities in international markets like the Asia-Pacific region, which accounted for 46% of its paid net subscriber additions in 3Q. It also experienced double-digit penetration in both South Korea and Japan.
All in all, Netflix is a reliable entertainment stock to invest in as shares have quadrupled in five years and delivered a jaw-dropping return of around 1,800% over the last decade. It’s not too late to jump on board though, as Netflix’s growth story is far from over. The company is set to only get bigger so investors should consider taking advantage of the current stalled share price.
2. Disney
The House of Mouse was forced to pull out a new trick this year after it experienced over $7 billion in losses due to the pandemic — a refocus on its media streaming division. The Walt Disney Company (NYSE: DIS) missed out on its new movies being released to the silver screen as movie theaters, alongside all of its theme parks, closed to comply with COVID-19 restrictions resulting in the stock crashing hard.
However, Disney proved its resilience by promoting its streaming services — Disney+, ESPN Hulu added 120 million subscribers in the fourth quarter. Those numbers may be behind Netflix, but they represent a wonderful start considering Disney+ is barely more than a year old.
Prior to launch last year, Disney told Wall Street that it will reach between 60 to 90 million subscribers by the end of 2024. Thanks to a strong boost from the pandemic, Disney+ now has 87 million subscribers. The company’s new forecast for Disney+ by the end of 2024 is somewhere between 230 million to 260 million subscribers worldwide. Disney stated it expects to be spending up to $16 billion a year on programming exclusive content to its streaming services.
Disney smashed its Q4 earnings estimates off the back of growing its Disney+ subscriber base to 73 million for Q3. The House of Mouse revenue came in at $14.71 billion, smashing expectations of $14.20 billion. During the earnings call, CFO Christine McCarthy announced Disney would forgo its semi-annual dividend in January to fund Disney+ content.
Then, on December 11, Disney stock hit a record high of $175.72 per share after rising 13.59% following Disney’s impressive ‘Investor Day’ event. During the showcase, it became obvious that streaming is a big part of its future after it announced lots of new content in the works.
Disney shaped the childhood of hundreds of millions of people around the world so their cult following is not going to disappear because of one bad year. Disney stock was a great buy during the summer, falling to under $110, and is still good value as share prices have increased over the last few months.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.