After Disney’s (NYSE:DIS) Toy Story 4 crushed box offices and I had a conversation with someone who chose not to convert his free Netflix (NASDAQ:NFLX) trial to paid membership, I took another look at these two media giants that are dominating headlines.
The outcome of these ruminations has me more bullish on Disney stock than I previously was and less bullish on NFLX stock.
This is not to say that the success of one automatically means that the other will suffer. I have made the case before that the ever growing pie of television streaming is large enough and will be large enough to lift the boats of multiple competitors. Unlike other tech sectors, streaming does not have a winner-take-all dynamic.
As a result, it is very possible to simultaneously be long DIS stock and NFLX stock.
Disney’s Unbeatable Franchises
The consistency with which Disney is able to churn out high-quality content is nothing short of impressive. Toy Story 4 has a 98% rating on Rotten Tomatoes. Children and adults alike are raving about the franchise’s newest installment.
And Disney does not have to do much to convince viewers to come see its latest film. Most people are familiar with the franchise already and probably have a Toy Story figurine or two somewhere in their houses. Disney’s top franchises, including Toy Story, continue to strengthen and become brands in their own right
These franchises drive digital traffic to the streaming site and physical traffic to the theme parks, providing positive catalysts for Disney stock price.
Netflix Is Losing Its Luster But Still Isn’t an Outright Short
While DIS stock is looking more attractive, Netflix is losing some of its luster.
Shorting is a dangerous game, since getting the timing right is an essential part of success. So just because there are some valid concerns about NFLX does not mean that now is the right time to short its shares, despite the company’s lofty valuations and its ever-growing cash burn.
NFLX is pouring billions of dollars each year into original content, and each year its spending on content rises by billions of dollars. Meanwhile, it’s unclear how all that content will be monetized. It’s true that its 130 million global subscribers are generating revenue, but Netflix’s growth is limited by its intense, increasing competition.
Something else that gives me pause is the data on web browser views of Netflix’s content from January through November 2018.
The top five most viewed shows on the list are not owned or produced by Netflix.
Take a moment to digest that.
Despite the tremendous efforts NFLX has made to create its own content, viewers are still gravitating toward shows that are only being licensed to Netflix. The Office, Friends, Parks and Recreation, Grey’s Anatomy, and New Girl held the top five slots and account for 17.4% of all Netflix views in the data set. That shows that in the no-holds-barred competition for eyeballs, Netflix really has not been able to convert those R&D dollars to a huge number of subscribers.
It’s no secret that the big media companies that own popular content are looking to launch their own streaming offerings.
The Bottom Line on DIS Stock
Disney still has plenty of value to unlock. It’s extremely disciplined when it comes to capital allocation and very savvy at monetizing acquired intellectual property.
When Disney announced that it would acquire Lucasfilm for $4.05 billion in 2012, many thought it was an astronomical sum to pay for just one franchise. However, between merchandise sales, amusement park traffic, and box-office sales, is there any doubt that Disney has made that investment back with just a couple new films and that the deal has provided a huge boost to DIS stock?
Disney and Disney stock are forces to be reckoned with.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
