Shares of Netflix (NFLX) were up 6% on Wednesday after the streamer reported subscriber losses that were much lower than expected by the Street. The most pertinent question for Investing Club members: What does this tell us about Disney (DIS) — which is often unfairly lumped in with Netflix? First, we have long stressed the differences between Netflix and Disney. Netflix is the dominant player in the streaming wars, boasting highly watched original series and movies. Disney has a smaller but growing streaming business in Disney+. But Disney is so much more than just streaming: ESPN and sports, theme parks, cruises and consumer products like toys and costumes. Moreover, Disney has one-of-a-kind content strategy that allows the company to not only maximize the monetization of its intellectual property, but also to create spinoffs of hit content; just look at cross-branding of the Star Wars franchise. Still, there are things investors can learn from the Netflix quarter. The biggest takeaway is that sentiment simply got way too negative on streaming, as indicated by the platform losing less than half of the two million subscribers expected by the Street and even management. Of course, less bad than expected isn’t exactly good. However, when we consider that Netflix already has 220 million global paid subscribers paying anywhere from about $8.52 (in Latin America) to $15.43 (in the United States and Canada) we think there is plenty of room left to grow for Disney+, which has 138 million subscribers as of last quarter. Average subscription price: just $4.35 globally. Just do the math and you see that Disney+ has room to gain audience and raise prices — especially as it builds out its content library. Disney’s ability to raise prices over time is supported by Netflix’s experience. While there is always going to be sum churn resulting from a price hike, Netflix management noted that in the U.S. the churn rate has already settled from a recent price increase. The strong dollar is a headwind for all U.S. companies selling into international markets (it was 4 percentage point headwind to Netflix), but the stark difference in subscription costs bodes better for Disney if consumers are forced to choose between streaming options. Also keep in mind, Disney plans to release an ad-supported version in the U.S. by the end of the year and internationally in 2023. In addition to being ahead of Netflix on this front, we think Disney has the advantage in execution; remember, it also has Hulu, which has a successful ad-supported version. When asked about what drove the better-than-expected subscriber numbers, Netflix management said it was all about content. That should be obvious, but it’s always good to hear, especially considering that Obi-Wan Kenobi (which premiered at the end of May) was the most-watched premiere on Disney+. Disney has a massive content pipeline set up both for the U.S. market and to help launch the platform internationally. On the last earnings call, Disney said it intended to launch in 53 new markets this quarter. That includes 180 foreign original titles would launch this year before increasing to over 300 international originals per year in 2023. Then there are the Disney parks. On Tuesday, analysts at KeyBanc maintained a buy rating on Disney shares, citing proprietary tracking stats showing theme park attendance actually rebounded in June, despite the challenging macroeconomic environment. The analysts did trim their price target to $131 from $151 on inflation fears. In line with our own view, the analysts called out theme parks as a “key differentiator” versus other media peers, including Netflix. The bottom line: At roughly 18.5 times 2023 earnings estimates — which are already being revised lower to reflect the slowing economy — Disney shares are a good value and we continue to like the company’s future growth potential.. Sentiment has simply gotten way too negative and investors fail to appreciate that Disney is more than streaming. Patient investors willing to look beyond the next three to six months will be rewarded for holding shares at current levels. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The Queen’s Gambit on Netflix and Disney’s Mickey Mouse
Netflix; CNBC
