The streaming wars ramped up this week after Netflix (NFLX - Free Report) announced a new partnership with Nickelodeon. The move comes after Disney (DIS - Free Report) launched its long-awaited streaming service that was deemed the “Netflix Killer.” With the two company’s jockeying for position in the competitive streaming TV space, how should investors judge the competition between the two companies?
Netflix vs Disney+
Netflix hasn’t necessarily had a strong year, with its stock up about 15% YTD, trailing behind the broader market. The streaming pioneer is also coming off two consecutive quarters of missing its subscriber growth guidance. The missed guidance is largely the result of the price hike the company implemented in the spring as it looked to strengthen its bottom-line. The streaming giant has also struggled in the US market where it experienced a rare sequential dip in paid subscribers during the second quarter.
On top of Netflix’s troubles, Disney’s streaming service launch has exacerbated investor’s worries about Netflix’s future. However, as growth has become relatively stagnant in the US market, Netflix has seen encouraging growth internationally. Nearly 17 million of the 19 million net additions through the first nine months of the year came from outside of the US.
The price hike Netflix implemented could serve to help Disney as it currently offers its new streaming service for $6.99 per month and bundles Disney+, Hulu, and ESPN+ for $12.99, which is the same price as Netflix’s standard plan. Early reports indicate that Disney+ had 10 million signups on its first day. However, investors should note that this includes free trial signups so it’s not an accurate measure of paying customers. Although, it does indicate the eagerness of the general public to check out the newest service.
In terms of content, Disney+ currently trails behind Netflix’s 4,000+ movie and 47,000+ TV episode library, but this could change down the road. Disney has produced the highest grossing movies from 1995 to 2019, which gives Disney the luxury of having access to a collection of successful movies and TV shows.
In response to Disney’s movie and TV show arsenal, Netflix has ramped up its original content spending to expand its library. Netflix has also published podcasts to complement its original content for most of 2019. Music streaming platform, Spotify (SPOT - Free Report) , has demonstrated the business value of these audio shows as its podcast audience has doubled since the start of the year. The move also serves to diversify the content and offerings available on Netflix that can help attract a broader audience.
And the Pick Is…
Netflix currently trades around 93X its forward earnings, which will likely discourage value investors. Disney is a multimedia conglomerate trading for around 26X forward earnings. In addition to the valuation difference, Disney pays out a quarterly dividend with a 1.2% yield.
As Netflix continues to finance its original content, investors can expect for the new projects to weigh on the company’s bottom line. Disney has access to shows that have already seen success with audiences, which might better equip it for prolonged success.
Disney’s reputation for producing fan-favorite movies also puts them ahead of the curve when it comes to rolling out new content. Disney’s success in the streaming space won’t happen overnight as Netflix has a head start of over a decade, where it has garnered its remarkable subscriber base (over 158 million).
However, the initial success and enthusiasm Disney has received for its service bodes well for the company. For investors looking for a more anchoring type stock with a pipeline to the lucrative streaming space, Disney may be the better pick.
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