Is Disney A Better Bet Compared To Netflix After ~40% Decline?

by Trefis Team
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Since early February, Walt Disney (NYSE: DIS) stock is down by about -38% compared to about -4% for Netflix, driven by the Coronavirus crisis. The media behemoth has had to close down its Theme Parks (which account for over 35% of total revenue) while also facing significant disruption to its TV and Studio operations. Last week, Disney noted that it would be issuing about $6 billion in debt to manage its liquidity, adding to its total borrowings of roughly $48 billion. Netflix, on the other hand, stands to benefit from such a crisis, as it is viewed as a “stay-at-home” stock, that could see traction as more people are confined to their homes, eschewing more public forms of entertainment.

Netflix Too Has Some Challenges

However, Netflix, too, could see some challenges. Netflix is somewhat saturated in the U.S. – its primary market – where subscriptions only grew by about 4% last year and household penetration stands at ~50% – giving it a somewhat limited upside for new subscribers. Moreover, Netflix is unlikely to be able to cash-in on the increasing number of hours streamed by its subscribers, as it operates on a fixed price model. The growth of Netflix’s international business could also slow if the global economy slips into a recession, considering that the company’s service is priced at a premium to pay-TV in many emerging markets, such as India.

Disney Could See A Stronger Rebound If Crisis Abates

Although Disney’s near-to-medium term earnings are likely to fall meaningfully due to the crisis compared to Netflix, which could see its results hold up better, it is likely that Disney could see a larger upside as the health crisis abates, considering its iconic content franchises and growing exposure to streaming, with its Disney+ and Hulu offerings continuing to add subscribers worldwide.

Our dashboard Is Disney Cheap After -38% Decline Vs. Netflix? compares the stock price performance and fundamentals of Disney and Netflix stock over the past few years. Parts of the analysis are summarized below.

Stock performance through the Coronavirus Crisis: 

  • Walt Disney stock has declined by about -38% since early February, compared to -4% for Netflix, after the WHO declared a global health emergency relating to Coronavirus.
  • Walt Disney stock has fallen by about 25% since March 9th, as U.S. cases accelerated, while Netflix has declined by about 10%.

Historical stock price Performance 

  • Netflix stock went from $8 at the end of 2009 to $324 at the end of 2019, representing a growth of about 40x.
  • During the same time period, The Walt Disney Company went from $28 to $145 representing a change of about 4x%.
  • This implies that Netflix stock grew at 9.7x the rate of The Walt Disney Company.

 Is Disney stock expensive or cheap based on a review of the fundamentals?

  • Disney’s current P/E multiple (based on 2019 results) stands at about 14x, compared to about 78x for Netflix.
  • Netflix 2014-19 annualized revenue growth of 30% is 4x that of the 2014-19 annualized revenue growth rate of 7.3% for Disney.
  • Netflix 2014-19 annualized EPS growth of 33% is 3.5x that of the 2014-19 annualized EPS growth rate of 9% for Disney.

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