The Streaming Wars: A New Hope For Disney
The streaming wars are in full force. Netflix's (NFLX) place on the streaming throne is being threatened by advancing competitors. Chief among them is Disney (DIS), whose new Disney+ platform has already accumulated more than 73 million paid subscribers in its first year of operation, far exceeding expectations.
NFLX has surged nearly 50% in 2020 thus far, with global lockdowns forcing the world to turn to digital entertainment. Society has been consuming streaming content like gravy on Thanksgiving amid this unprecedented health crisis, burning through one platform and moving on to the next.
Disney+ is that next hot streaming platform with its century-long catalog of globally recognized titles driving its subscription growth.
The Disney Story
Disney's core streaming app has overtaken Netflix as the fastest-growing streaming platform on the market. Over the past 3 quarters, Disney+ has added an astounding 47.2 million subscribers, and its growth is accelerating every quarter with further international penetration.
Netflix has added 28 million in 2020 thus far, but it's experiencing a massive deceleration with only 2 million new subscribers being added this past quarter. It appears that Netflix might be hitting a growth ceiling as its potential international customers consider their options.
Disney+ is less than half the price of a Netflix subscription, and its rotating catalog of internationally renowned titles is much more attractive to foreign consumers who are deciding between the two platforms.
Disney is a much different investment than Netflix. This global enterprise is a media conglomerate that derived a good portion of its pre-COVID profitability from its Parks and Studio Entertainment segments, which have seen extensive pandemic related declines.
This week's vaccine news put a light at the end of the tunnel for Disney's struggling segments, providing the stock with a sizable boost. DIS blew earnings estimates out of the water Thursday night (11/12), further bolstering optimism about DIS as investors look towards the future.
Disney+ is undoubtedly going to be an integral part of this multi-sector media giant's future. Its accelerating subscription growth is an excellent sign for its impending digital dominance, which includes ESPN+ and Hulu.
Despite NFLX's surge in early COVID, the stock has traded sideways since July. Vaccine hopes have negatively affected this 'pandemic stock' as investors rotate out of 2020's digital winners and into cyclical underperformers.
Netflix (NFLX) may be in trouble, with the pandemic halting original content production and media giants swooping into reclaiming their rights to exclusive content from the streaming king.
Netflix's subscription growth is decelerating fast, with September quarter earnings illustrating its slowest quarterly subscription expansion since Q2 2016.
Other media conglomerates are entering this quickly saturating space like Comcast's (CMCSA) NBCUniversal powered Peacock, and AT&T's (T) expanded HBO offering, which will now include all WarnerMedia's long history of content, with its new platform HBO Max.
As more and more media giants enter the space, more content will be pulled from Netflix's thinning library. Netflix's savvy management has been hedging against this unfortunate development, spending billions on original content for almost a decade, but this may not be enough. Netflix knew they had to catch up to its impending competitors' deep content libraries, and they will continue to rely on original productions to maintain subscribers.
The global pandemic was both a blessing and a curse for Netflix. The enterprise was forced to shut down all production in North America until it is deemed safe to launch again (very uncertain timeline). Netflix's pipeline of new content is drying up, and many subscribers have watched everything (worth watching) on the platform.
Disney, NBCUniversal, and WarnerMedia have decades of original video content at their disposal and do not need to rely on new productions nearly as much as Netflix. These three media giants could sit on their enormous libraries for years and still keep viewers entertained. This is a concerning thought for someone holding NFLX at 56 times forward earnings.
I like DIS and its potential in the long run, but I am not chasing this rally. Disney's primary profit drivers still have a long road to recovery even after a vaccine is universally available. I would consider adding to my DIS holding if the stock fell back below $120 again. I am staying away from NFLX's valuation rich shares as its user growth significantly decelerates.
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