Can Streaming Growth Double Disney’s Stock Price?

Disney (NYSE:DIS) recently shared its Q4 results, showing that its streaming business is really starting to take off. Even though its theme parks and cable TV segments were under pressure, the direct-to-consumer division brought in $5.8 billion in revenue over the last quarter, marking a 15% increase compared to last year. Operating profits also saw a significant jump to $321 million, compared to a loss of $387 million in the same period last year.

It’s no secret that Netflix (NASDAQ:NFLX) is the reigning champ in the streaming world, with its stock up almost 90% this year. In contrast, Disney’s stock is up 29% and has a market cap of $200 billion, less than half of Netflix’s $390 billion. But here’s the kicker – despite Netflix’s lead, Disney’s direct-to-consumer operations are not far behind in terms of revenue. Disney brought in around $23 billion last fiscal year, while Netflix is expected to hit $39 billion in streaming revenue this year. This suggests that Disney’s overall value might not be fully recognized given its strength in the streaming space.

DIS stock hasn’t fared as well as the broader market in recent years, with negative returns in 2021 and 2022, and a modest 4% gain in 2023. On the flip side, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has shown more steady performance compared to the S&P 500. With the current economic uncertainties, including rate cuts and geopolitical conflicts, some wonder if Disney might face a similar fate in the coming months or stage a recovery.

Disney has been investing heavily in its streaming business and is now reaping the rewards. Disney+ added 4.4 million core subscribers in the last quarter, pushing its total subscriber count to approximately 123 million. Hulu also saw growth, with about 52 million subscribers. Disney’s strategy of increasing prices has helped boost revenue, with the ad-free Disney+ plan seeing a $2 hike in October. Notably, about half of U.S. Disney+ subscribers are on the ad-supported plan, showing that this model is gaining traction.

When comparing Disney to Netflix, it’s clear that Netflix has more subscribers and higher average revenue per user (ARPU). However, Netflix’s operating margins are much higher at 30% compared to Disney’s 5%. This discrepancy in profitability is reflected in the companies’ valuations, with Netflix trading at 39x estimated 2025 earnings, much higher than Disney’s 21x valuation.

Despite Netflix’s current momentum, Disney’s vast library of intellectual property, including beloved franchises like Marvel and Star Wars, positions it well for future growth. A reevaluation of Disney’s streaming business could potentially double its stock value, making it an interesting prospect for investors looking for long-term growth opportunities.