2022-12-20 • Updated
As we have mentioned in the Forex and stock market review of 2019-2020, Disney and Netflix are likely to enter a fierce battle next year as both companies provide streaming services and are direct competitors. From the invertor’s point of view, that may be good news as each will try to win the market and provide peak performance. However, while both companies present interesting investment opportunities, details of each one’s market disposition may tilt the scale in their favor. Thus, let us make a small investigation into each company’s business so that you can make your own judgment and decide which one to bet on.
As a company, Netflix started operating in 1997-1998 delivering DVDs on demand for a monthly subscription. Hence, the business idea was there 10 years before the online services started flourishing. Later, when Internet technologies developed enough, the company moved to the next level. In 2007, after having delivered its billionth DVD, the company decided to shift to online streaming, which at the time was not a guaranteed business decision. However, by 2011 the number of Netflix subscribers reached 20 million. These days, Netflix offers approximately 6000 movies and TV shows for a minimum monthly fee of $9 per month, having more than 150 million subscribers.
On the weekly chart below, Netflix stock shows interesting price movement. First, we see unprecedented growth until July 2018. After that, the picture “suddenly” becomes flawed and volatile, resulting in a decline. Hence, an investor may ask, “What happened?” doubting the future of the company and assuming that the success story may be over in 2020.
However, a brief investigation shows that the 2018 plunge was just a market cool-down after an over-the-top stock value growth, based on over-the-top investor’s expectations. That, in turn, was based on somewhat too optimistic customer base expansion plans. The company announced but didn’t meet this plans. In other words, everyone thought that Netflix would keep flying up almost exponentially as it was in 2017-2018. Naturally, an unexpected slowdown in the subscriber base expansion that led to duller cash flows came like a slap in the face of the market. Consequently, it steamed off and got back down. In fact, it got down exactly to the growth trajectory it was on until 2018. That is visible on the chart as an uptrend throughout the entire period of observation.
Yes, there will be strong competition from Disney, which launched its own streaming service a month ago. Nevertheless, analysts do not predict any doomsday for Netflix stock. On the contrary, some of them forecast its rise to $420 per share against the current $333. They explain the recent controversies of the stock growth by the long-term strategy of Netflix.
Building on its original content as the core product, the company periodically faces reduced cash flows, disappointing the investors. However, this is just a step within a larger long-term strategy. Once the original content expansion is over, the company will shift to the content-maintenance phase. At that stage, Netflix will be reaping the fruits of prospering on an enormous and still growing global customer base, lavishly offering its endless archive of TV shows and movies to who knows how many thousands.
Obviously, Walt Disney’s creation is in the business for a long time – namely, almost a century. Not getting into the details of Disney’s corporate activities in a struggle to keep expanding, we can come straight to 2019 as it is exactly in November this year when the company launched its Disney+. November 12 was the day when the streaming service was put in action, and it saw 10 million subscribers straight away. Since then, their customer base has been growing a million every day, according to some estimates. Disney plans to reach 60 to 90 million subscribers over the next 5 years.
A monthly chart of Disney stock shows troublesome four years of 2015-2018 and a back-to-rising tendency in 2019. The drop during those years may be explained by lower-than-expected corporate earnings as well as by a cross-country cable-cutting trend in the US reducing the numbers of cable TV packages purchased, which affected Disney’s sales.
The latter, however, may have caused but a temporary muting effect on Disney’s stock performance, according to the analysts. Especially, in view of Disney+ project launched recently, which substantially supported the stock price.
Currently traded in the area of $145 per share, Disney stock is predicted to rise into 2020 and reach above $180 and possible even $200, as some observers predict. In any case, while the streaming service is on the first wave of expansion and continuous production of well-known sequels such as Star Wars keeps going, it is unlikely that a strong fan base of Disney will cease growing and demanding its service. Notice that Disney+ costs a minimum of $7 per month, which is $2 less than Netflix, although it offers much fewer items to watch.
Disney and Netflix both present interesting investment opportunities. Hardly any analysts within financial circles recommend abstaining from purchasing these stocks for 2020. However, which one will be more successful - it is hard to forecast. Better, as an old proverb says, watch the two tigers fight, sitting on a hill. Hence, we would recommend holding stock of both companies and watching how the situation develops. For that, follow the news and stay informed.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
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