Shares of Netflix Inc. (NASDAQ: NFLX) soared on its subscriber growth and ability to raise prices. The company that needs to match that pattern is Walt Disney Co. (NYSE: DIS), which has had a troubled history with streaming but is in the early stages as one of the winners in the sector.
Astonishingly Strong Earnings
Increasing prices and raising its revenue forecast.
Netflix posted astonishingly strong earnings. Revenue grew 16% to $10.2 billion. The company added 19 million subscribers. That takes its total to 301.6 million. The only service that is even close to Netflix based on subscribers is Amazon Prime. It is, however, a very small part of Amazon.com Inc.’s (NASDAQ: AMZN) total global revenue. And it is viewed as leverage to get customers to join Amazon Prime. Amazon Prime revenue is about $25 billion.
In terms of the near-term future, Netflix raised the price of its least expensive service by $1 to $7.99 a month. This service is ad-supported. It raised the price of its top-tier subscription by $2 to $24.99 a month. It also raised its revenue forecast for 2025 and said its margins would improve.
On the Other Hand
Struggles with streaming.
Disney’s streaming services, on the other hand, have struggled. Its primary service, which is Disney+, launched in November 2019 under CEO Bob Iger. Iger has since left the company and then rejoined as chief executive again.
Disney+ has lost billions of dollars since the launch. Some estimates are as high as $11 billion. Investors have viewed it as an offset to Disney’s success in theme parks and studio operations, When Disney released its most recent earnings, “direct to consumer,” which includes Disney+, had a very modest operating profit of $47 million. Disney+ total subscriber base at that point was 123 million. Disney management forecast higher operating profits for the unit, which also includes Hulu.
Investors remain skeptical about Disney’s prospects. The stock is up 16% in the past year, while the S&P 500 is 25% higher. If its streaming figures improve when it announces earnings in a month, the stock has a chance to rally. (Netflix shares are up almost 100% over the same period.)
The one issue Disney still faces is what is called “churn rate,” which is the pace at which people cancel subscriptions. Netflix has the lowest churn rate in the industry. Disney’s is slightly higher. The challenge for the industry is that for each subscriber who cancels, the service needs to replace that person to keep overall subscription levels steady.
Netflix is the industry leader. Its good news has a chance to be a sign that the industry as a whole is healthy.
Prediction: Netflix Stock Could Be Next in Line for a Split After it Hits $1,100
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