There’s no other way of saying it: while the coronavirus was a horrible event for almost everyone, it was great for Netflix (NFLX). The global sofa bound population took the opportunity to sign up to the streaming service which saw new subs reach record levels during the height of the pandemic.
But like a good binge series’ first season, last year’s performance has, unsurprisingly, been a hard act to follow. In fact, along with the slowdown of new subscribers, the stock has also underperformed this year, remaining flat and trailing the S&P 500 by some distance.
With Netflix reporting Q2 financials next week (July 20), Canaccord analyst Maria Ripps is anticipating “another quarter of modest subscriber growth,” although her estimate of 1.1 million net adds is just above Netflix’ guide for 1 million new additions.
Ripps thinks investors’ focus will turn to whether this metric can improve in 2H21, and here the analyst believes Netflix is well-positioned to deliver, as in contrast to last year’s lack of new content, the release schedule for this year’s second half is rich with new offerings and should generate a lot of interest amongst content thirsty consumers.
During July, new reality shows and new seasons of “returning favorites” will hit the screens, including Atypical, Virgin River, Never Have I Ever, and teen drama Outer Banks, one of last year’s most popular Netflix shows. All should help “drive a notable uptick in subscriber acquisition.” As such, the 5-star analyst anticipates roughly 14 million net adds in 2H21, compared to the 5 million expected in the year’s first half.
But it is further down the line, in 1H22 and beyond, when some of the streaming giant’s most popular titles will make their return. These include Stranger Things, The Crown, and Ozark, prompting Ripps to sum up Netflix “continues to invest in unique content both in the US and around the world which is helping to strengthen its competitive positioning and differentiate its library from those of rivals.”
So, good news for Netflix and binge lovers, but what does it all mean for investors? Ripps rates Netflix shares a Buy, and his $650 price target implies ~20% from current levels. (To watch Ripps’ track record, click here)
Most of Ripps’ colleagues are of the same mind although not all are on board. Based on 26 Buys, 7 Holds and 3 Sells, the stock has a Moderate Buy consensus rating. The forecast is for 12-month upside of ~12% given the average price target currently stands at $607.03. (See Netflix stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Many viewers in the U.S. are consuming content through OTT (over-the-top) players, as users are cutting the cord on pay-TV and switching to content streaming.
According to a Grand View Research report, the global movies and entertainment market is expected to be worth $114.93 billion by 2025.
Using the TipRanks Stock Comparison tool, let us compare two media companies, Netflix and The Walt Disney Company, and see how Wall Street analysts feel about these stocks.
Netflix (NASDAQ: NFLX)Netflix is expected to release its Q2 earnings on July 20. In Q2, the company expects to earn revenues of $7.30 billion while earnings are expected to come in at $3.16 per share. The company expects to add 1 million new subscribers worldwide in Q2, down from the 10 million in the year-ago quarter.
According to Netflix, the reason for the low subscriber addition estimate in Q2 is that the company expects memberships to be “flattish” in Latin America, the United States, and Canada. However, NFLX expects paid memberships to rise in the second half of the year because of its programming slate.
Moreover, according to Stifel Nicolaus analyst Scott Devitt, the analyst’s reading of the company’s app engagement data suggested a “modest upside to 2Q guidance, with global app MAUs [monthly active users] rising +3.85mm in 2Q.”
“Notably, end of period app MAUs in LATAM [Latin America] increased +1.28mm sequentially while UCAN [the United States and Canada] MAUs rose +0.55mm, implying potential upside to the company's guidance calling for flatfish growth in those regions,” Devitt added.
Nevertheless, the analyst cautioned that app engagement and download data remained an inaccurate gauge to predict the rate of subscriber growth. Devitt has a Buy rating with a price target of $560 (2.2% upside) on the stock.
Additionally, analyst Devitt expects NFLX to add more than 100 million subscribers over the next five years and to reach paid subscribers of 400 million by 2030.
The analyst added that the company’s international penetration continues to rise “with greater adoption in key markets, including Europe, Latin America, and APAC, with significant runway remaining.”
Furthermore, Devitt expects the company’s free cash flow to break even in 2021 “and gain significant content spend leverage from there with a long-term operating margin of mid-30% and significant FCF conversion which we expect will fuel future cash return to shareholders.”
On another positive note, Netflix has been aggressively expanding its original content library in the increasingly competitive streaming space. The company expects to spend more than $17 billion in cash on content this year. Netflix has plans to launch more originals compared to 2020. (See Netflix stock chart on TipRanks)
On June 10, Netflix launched its first owned-and-operated online retail outlet, Netflix.shop, to sell products directly to consumers, establishing a foothold in the e-commerce space. The online product store is currently only available in the United States, but it will soon be expanded to other countries.
In Q1, revenues came in at $7.16 billion, up 24% year-over-year. Earnings per share in the quarter more than doubled to $3.75 against $1.57 reported in the year-ago period.
Consensus among analysts on Wall Street is a Moderate Buy based on 26 Buys, 7 Holds, and 3 Sells. The average Netflix price target of $607.03 implies approximately 10.8% upside potential to current levels.
The Walt Disney Company (DIS)The Walt Disney Company operates in four business segments, including Media Networks, Parks, Experiences and Products, Studio Entertainment, and Direct-to-Consumer (DTC), and International business.
Here, we will be specifically looking at the company’s DTC business.
Around three days back, the company announced an increase by one dollar in its monthly subscription for its sports channel ESPN+ in the U.S., to $6.99. It also increased the annual subscription price for ESPN+ by $10, to $69.99.
However, Disney kept prices unchanged for all its bundled services, such as Hulu and Disney+ at $13.99 per month.
The company had stated on its Q2 earnings call that Disney+ had an Average Revenue Per User (ARPU) of $3.99 in Q2 and that DIS expects “to see the benefit on Disney+ ARPU from price increases we’ve taken around the world.”
Disney expects to announce fiscal Q3 results on August 12.
In the fiscal second quarter, Disney posted revenues of $15.6 billion, down 13% year-on-year. The company reported adjusted earnings of $0.79 per share, up 32% year-on-year.
In Q2, Disney’s DTC service Disney+ had paid subscribers of 103.6 million and expects to have 230 million to 260 million subscribers by the end of FY24. Disney expects this subscriber growth to be driven by the addition of 30 million paid Disney+ subscribers in the first half of the year.
Disney is further expanding its DTC streaming services and anticipates launching Star+, its standalone sports and general entertainment streaming service for Latin America, on August 31. (See Disney stock chart on TipRanks)
Yesterday, Tigress Financial Partners analyst Ivan Feinseth reiterated a Buy with a price target of $227 (23.8% upside) on the stock. According to Feinseth, the company is “experiencing signs of recovery across all business lines as it continues to benefit from the strength of its DTC (Direct-to-Consumer) segment driven by its incredible content, value-based pricing, and additional growth as it increases global access.”
Furthermore, the analyst believes that Disney remains the king of content, as indicated by the box office performance of the company’s Black Widow.
Earlier this month, Disney and Marvel’s Black Widow, starring Scarlett Johansson, had a successful opening in theatres and streaming service Disney+ at the same time. The movie earned $158 million from box office sales and made another $60 million on Disney+ in its first weekend.
According to the analyst, the success of Black Widow highlights the strength of Disney's franchise, and shows that movie-going is on the rebound. It also proves that DTC streaming and theatrical releases of movies can coexist.
On another positive note, Feinseth added, “DIS’s massive slate of new content will further drive its DTC streaming platforms’ success and the halo effect it will have as its studios continue to ramp up production and drive increasing traffic to its theme parks and resorts.”
Consensus among analysts on Wall Street is a Strong Buy based on 18 Buys and 3 Holds. The average Disney price target of $210.89 implies approximately 15% upside potential to current levels.
Bottom LineWhile analysts are cautiously optimistic about Netflix, they are bullish about Disney. Based on the upside potential over the next 12 months, Disney seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.