This festive period, investors will be watching Netflix’s [NFLX]’s share price as viewers watch all-star musical film The Prom. Meanwhile, Pixar’s latest release, Soul, will be available on Disney+ from Christmas Day, which investors hope will support Disney’s [DIS] share price. Is either company likely to pull ahead in the streaming war?
For the year to 15 December’s close, Netflix’s share price has seen a 57.6% gain and has increased 79.1% since falling to a 52-week low of $290.25 during the market sell-off back in March. Netflix’s share price hit an all-time high of $575.37 on 13 July, largely thanks to lockdown-driven subscriber gains.
In what has been a far more turbulent year, meanwhile, Disney’s share price has crept up 17.37% YTD and has risen just short of 120% since bottoming out at a 52-week low of $79.07. Disney’s share price spent much of 2020 in the red due to its parks and attractions — the company’s largest revenue segment pre-pandemic — being forced to close or having to limit capacity. The good news about a COVID-19 vaccine and hopes for economic recovery however, pushed Disney’s share price to what was then an all-time high of $157.46 on 9 December. It continued to climb and reached a new all-time intraday high of $179.45 on 11 December, from which it has since pulled back slightly to sit at $173.94 on 15 December.
Better than expected results
Disney’s Q4 2020 earnings report in November showed a business that was successfully managing the impact coronavirus restrictions have had on operations. Its $14.71bn reported revenue beat the forecast $14.2bn and losses were not as wide as had been feared — $0.20 versus an expected $0.71.
Disney Q4 revenues
Despite a 23% decline in revenue year over year from the $19.1bn reported in Q4 2019, a standout figure from the earnings report was the number of subscribers Disney+ has amassed: 73.7 million users.
Having only launched in November of last year, the service has smashed past projections made by Morgan Stanley prior to the launch. As reported by CNBC, analyst Benjamin Swinburne had predicted in July 2019 that the streaming service will bring in 13 million subscribers by the end of 2020 and add 70 million in 2024 for a total of 130 million.
Morgan Stanley has now raised its projections to 230 million subscribers by the end of 2025, while analysts at MoffettNathanson have forecast a subscriber base of 160 million by the end of 2024.
As impressive as these numbers are, it leaves some way to go to catch up with Netflix, which already boasts 195 million global subscribers. That said, Netflix’s user growth has been slowing. In the three months to the end of September, it added just 2.2 million new subscribers, having added 10.1 million in Q2 and 15.7 million in Q1. The company expects to bring in 6 million new users in the current quarter.
One reason for the slowing user growth could be the price. Netflix no longer offers trials, and its standard package is priced at £9.99 in the UK and $13.99 in the US. In comparison, Disney+ is £5.99 and $6.99 respectively.
Apple [AAPL] TV, which is also in the stream mix, has priced its subscription even lower at £4.99 and $4.99 per month. However, Apple doesn’t break out subscriber numbers — it has a total of 585 million paid subscriptions across its services — and it currently offers a free annual subscription with each new iPhone, MacBook or iPad purchase.
Apple's total paid subscriptions
A high proportion of Apple TV users are likely to be non-paying, so the question for the tech giant is whether its current content offering and future original programming will be enough to encourage those on a trial to pay for the streaming service.
Streamers’ reason for being
Doug Anmuth, internet analyst at JPMorgan, doesn’t feel that Netflix’s price is putting pressure on subscriber numbers. In a note to clients seen by MarketWatch, Anmuth reiterated an Overweight rating and raised his price target slightly from $615 to $628.
Furthermore, If Disney+ has ambitions to make up ground on Netflix, then it needs to put more focus on streaming. Its current business is too segmented to keep up with a dedicated platform like Netflix.
Back in October, Third Point founder and CEO Dan Loeb suggested that Disney scrap its dividend and redirect capital into original content production, especially as the stock has been beaten down due to the pandemic.
“Time is of the essence and the company should consider significant additional investments in content, both through production and acquisitions here and abroad,” Loeb wrote in a letter seen by Bloomberg, adding that the company should embrace home entertainment and focus less on theatrical releases.
“Every Hollywood executive has been able to enjoy first-run movies in the comfort of their home for years. We urge you to democratise this experience and to continue to embrace the future of home entertainment with the utmost urgency in executing the company’s digital transformation.”
Disney has since recognised the importance of Disney+ to its future growth. It has restructured the company to focus on media production and streaming by investing more of its capital in content production.
Douglas Mitchelson, managing director of equity research at Credit Suisse, believes Disney+ can rival Netflix, saying in a note to clients seen by Barron’s that many investors are underestimating how much Disney actually spends on original programming — he has forecast 2021 spend to be $27bn.
Disney's forecase spend on original programming 2021
He does, though, caution that the service’s new releases for the first quarter of next year are a little on the light side. The stock was given an Outperform rating, with a price target of $146. It was raised again on 9 December to $178, according to Webull.
In total, Disney has 31 Wall Street ratings available according to MarketBeat — 23 analysts rate the stock a Buy, seven a Hold, and one a Sell. The consensus price target is $154.03, which would represent an 11.4% decrease on Disney’s share price as of close on 15 December. Netflix, meanwhile, has 38 ratings of which 24 are a Buy, nine Hold, and five Sell. The consensus price target of $537.50 would represent a 3.4% increase on Netflix’s share price close on the same date.
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