Streaming Wars? Never Heard Of ‘Em
Exactly two years ago to the day, Disney enthusiasts everywhere were up on their high horses about the infamous ‘Netflix killer’ that was launching the following day. Disney+’s beta had been pretty successful, people were already lining up their Christmas watchlists, and Disney stock was soaring.
Disney+ launched and Netflix seemed as good as dead. Tens of millions of subscribers in just a month, the greatest content ever, nothing would ever top it — at least, according to Disney bulls.
Now, back to the present day, and Disney’s share price is up a respectable 16% — not bad. Meanwhile, Netflix is up closer to 125% in the same two-year period. Not to mention that they both have near-identical market caps — approximately $294 billion — despite the fact that Netflix is essentially just a streaming service right now, while Disney does, well, everything.
Ok, sure, COVID-19 happened, Disney’s parks closed, Netflix profited from people staying at home, blah blah blah. But at the end of the day, Netflix is still here, albeit with the same problems of slowing domestic growth that it had back in November 2019. Disney+ has also been wildly successful, boasting 118 million subs in two years — TWO YEARS!?!
But as a result of the latter’s growth being exponentially faster than Netflix’s own during its 20+ year history, it is also running into Netflix’s problems quicker — there are only so many people willing to pay for streaming right now. Subscriber growth is slowing, with Disney’s earnings call last night showing just 2.1 million Disney+ additions, compared to the 9.4 million expected. That’s a whopper of a miss…and this isn’t a new thing either, with Disney+ subscriber growth coming in rather tepid all year on the domestic front, boosted only by its success in the less margin-friendly Indian market.
And, like Netflix, Disney+ is also facing the reality of COVID-19-induced production delays, higher programming costs as a result of higher demand, and increased competition in the streaming space.
So, the elusive ‘streaming wars’ that we all heard so much about for so long never quite panned out, did it? So far, at least, there has been no great culling of the weakest in the herd — we’re looking at you, Apple TV+ — and the streamers seem to just be getting on with things.
And while nobody would ever call Disney+ a failure — in fact, for such early days, I’d call it wildly successful beyond a bull’s most elusive wishes — I think we can put the concept of ‘Netflix killer’ to rest.
And Netflix is arguably stronger than ever:
It is the forerunner in streaming, walking so that Disney+ et al. could run.
Its user experience/interface is unparalleled, i.e. it looks nice and its algorithm’s awesome.
Despite being ‘old’, it added 4.4 million new subs globally in Q3 — double Disney’s.
It has 214 million subscribers around the world.
Revenue has increased more than 30% annually for the past five years while gross margin and operating margin have steadily climbed — its operating margin now sits at 23%.
Netflix Gaming is out in the world, for better or worse.
It has launched a merchandising business — watch out Disney.
‘Squid Game’ again — it’s that good.
I could list out all the reasons that Netflix is probably pretty safe from being wiped out by the House of Mouse, but luckily, our analyst Anne Marie already has that covered.
Why not take a look at the thesis for Netflix being our most recent Stock of the Month here. Or, if your eyes are tired, you can catch Anne Marie chatting all about her choice on our exclusive Stock of the Month podcast here.