Disney Vs Netflix – A Closer Look At The Streaming Stocks
BY Chris Andreou
|September 30, 2021Netflix is the biggest streaming service in the world, a dominant global enterprise that spans 190 countries. Disney on the other hand has put together a streaming powerhouse in just a couple of years, having launched Disney+ in November 2019.
While Disney’s business consists of much more than just Disney+, traders deciding between the two stocks likely have streaming top of their mind, as the emergence of Disney+ and the company’s stated aim to prioritise this division of its business becomes the primary catalyst for its share price.
So which stock is the better trade right now? Let’s take a closer look at what each has to offer.
Subscriber Surge At Disney
Walt Disney’s reported earnings for Q3 2021 easily beat even the optimistic Wall Street estimates. But what really had heads spinning was its reported subscriber numbers, clocking in at a shocking 116 million – an astronomical figure for a service that was launched in November 2019. To put it into context, Netflix has a little over 200 million subscribers, having started its streaming service way back in 1998.
Although more than impressive, Disney’s customer growth figure doesn’t tell the whole story. It still falls far short in the one metric that matters most.
Disney’s Secret Subscriber Caveat
Subscription businesses are obsessed with one key metric – average revenue per user (ARPU). This key figure tells us how much each subscription member brings in for the company every month. During their stellar third quarter, Disney+ generated ARPU of $4.16, which is actually down from $4.62 for the same period last year. Comparatively, Netflix crushes Disney+, with ARPU in the same quarter coming in at $11.65, almost three times that of Disney+.
Why is this number so crucial? Not only do these companies need to grow their customer base, but they need to learn how to correctly monetise them over time, leading to greater profit per customer. Disney+ has certainly been adding users at a fast rate, but it’s come at the expense of ARPU.
What’s been overlooked in the remarkable subscriber growth of Disney+ is that most of these new subscribers are coming through Disney+ Hotstart, which is Disney’s streaming service in India, Malaysia, Thailand and Indonesia. Viewers in these developing countries pay significantly less than customers in the US and Europe, so it is expected that as Disney+ grows in the region, ARPU will naturally fall.
This makes the Netflix number stand out even more, given that around two-thirds of its new subscribers are outside the US and Canada. The company has made a big push into India, recently announcing plans to create 40 local productions there shortly. Even so, ARPU has marched ever higher at Netflix, which has managed to offset its low-priced plans in the rest of the world with price increases in the US.
Disney On The Rise After Pandemic
With cinemas shut down, live sports taking a hiatus, and its theme parks and resorts business out of operation, it’s arguable that Disney has been as exposed as any company to the covid-19 pandemic.
However, stock traders have recently sent Disney shares soaring to all-time highs, buoyed by the emergence of Disney+ and its broader streaming business, which includes ESPN+ and Hulu. Initially, the company had projected that Disney+ would reach up to 90 million subscribers by 2024, but after surpassing that mark in just over a year, the company is now chasing a target range of between 230 million and 260 million subscribers. Disney is aiming for as many as 350 million subscribers across all its streaming platforms by 2024.
Impressively, the incredible growth on Disney+ has been accomplished with almost no original content of note – the first live-action series in the Star Wars franchise, The Mandalorian, is the only truly high-profile show it has launched so far. Instead of original content, Disney has largely resorted to adding a steady stream of originals from Pixar, Star Wars, Marvel and Disney Studios.
Netflix More Recession-Proof
Netflix has been a star of the stock market since its IPO in 2002. However, the company is now entering a new phase in its maturing business. In North America, growth has slowed to less than 10% year on year, even with the pandemic-fuelled rise in business. But the company still has plenty of room for growth in international and emerging markets, even though over two-thirds of its subscriber base already reside outside of North America.
Netflix now faces waves of competition like never before, as direct-to-consumer media goes mainstream, with nearly every major TV station, Hollywood studio and cable operator launching their own streaming service. But because Netflix operates a majority international-market operation, where streaming services aren’t as ubiquitous, this presents a slightly less precarious challenge than it might seem at first.
As the company’s subscriber growth slows, growth in its bottom line is ramping up. Netflix forecasts that its operating margins will increase from 18% to 20% during 2021, and is targeting 29% by 2024. In other words, Netflix is quickly turning into a money-spinning machine. This is what the subscription model is designed to deliver: high margins at a huge scale, while incremental revenue growth flows straight down to the bottom line.
Expect the company to supplement revenue growth with price hikes (currently underway in the US and other parts of the world), a sign of its competitive strength.
The company retains a stranglehold on the streaming market as it remains the leader in this large and rapidly expanding industry and it will not be uneasy to unseat the current king of the streaming wars.
Conclusion
Both companies are in rude health. Netflix is a more recession-proof business. It has one business segment which can be subscribed to for less than a dollar a day in all regions it operates in and is constantly updated with new entertainment for the whole family. Therefore during a recession, it is probably one of the last things to get rid of.
By contrast, Disney has a broad empire that includes cruise ships, theme parks, resorts and merchandise. While this makes it more prone to a recession, it also means that the company has more factors to lift it in the years ahead. The economic recovery and the stellar performance so far of its streaming business are two of those catalysts, and its treasure trove of intellectual property remains unmatched in the industry. Register today with TIOmarkets.com
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