Can Streaming Growth Double Disney Stock Value?

Disney’s latest quarterly results reveal that the streaming side of the business is really hitting its stride. Even though the theme parks and cable TV faced challenges, the direct-to-consumer section brought in $5.8 billion in revenue, a 15% jump from last year, with operating profits of $321 million compared to a loss of $387 million the year before. However, Netflix is still leading the way in streaming, with a stock that’s soared almost 90% this year, way ahead of Disney’s 29% gain. Netflix’s market cap of $390 billion dwarfs Disney’s $200 billion. But here’s a surprise – Disney’s direct-to-consumer revenue is catching up, with close to $23 billion compared to Netflix’s estimated $39 billion this year. This leads us to think that Disney’s overall value might not be fully recognized considering its success in streaming.
DIS stock has lagged behind the market in the last few years: -15% in 2021, -44% in 2022, and up just 4% in 2023. In contrast, Trefis’s High Quality Portfolio, made up of 30 stocks, has shown steady performance, outperforming the S&P 500 each year. Why is that? The HQ Portfolio has provided better returns with lower risk than the benchmark index. With the uncertain economic climate, could Disney face a repeat of its underperformance, or will it bounce back?
Disney has recently focused on its streaming operations, and it’s starting to pay off. Disney+ added 4.4 million core subscribers last quarter, hitting about 123 million subscribers, up by 9% from last year. Hulu boasted 52 million subscribers, a 7% increase from the previous year. Raising prices has also been a revenue driver. For example, Disney+’s ad-free plan received a $2 hike to $16 in October. Half of U.S. Disney+ subscribers now choose the ad-supported version, with 37% on these plans. Disney’s push towards ad-supported tiers is strategic, as they bring in more revenue and better target users, especially with Disney’s family-friendly content.
As for Netflix, it reported 283 million global subscribers last quarter, up 14% from last year. Netflix’s ARPU of $11.60 surpasses Disney+’s $7.30, though Hulu’s ARPU is around $12.50. Despite Disney’s growth, Netflix remains more profitable, with a 30% operating margin compared to Disney’s 5%. This can be seen in the companies’ valuations, with Netflix trading at 39x estimated 2025 earnings while Disney, with its other assets, sits at a more modest 21x. While Disney seems like a good value, we believe Netflix may not be worth the risk at $900.
A reevaluation of Disney’s streaming business could push Disney stock to double in value. With its vast library of iconic franchises, Disney has tremendous potential for growth.