As the anti-trust and regulatory heat gets turned up on its FAANG cousins, Netflix is facing its own competition in the form of the mega-entertainment conglomerate Walt Disney Company. As the streaming content space grows more crowded and Netflix begins to lose its first-mover advantage, investors may be wondering which stock is looking better over the long term?
It’s Netflix, say Middlefield Capital’s Rob Lauzon and Paul Sagawa, who like Netflix’s pure play status and international presence.
Both Netflix and Disney have seen their share prices rise in 2019, with NFLX now up 31 per cent year-to-date and Disney up 25 per cent. Netflix has shown itself capable of continually growing its subscriber base while pumping out billions in new content, whereas Disney is hoping to make waves with its Disney+ streaming service set to come online in the fall.
Lauzon says that both are solid bets but Netflix may have better returns over a five- to ten-year period.
“We like them both but you’re going to get more growth from Netflix. They’re doing a great job penetrating not only North America but now internationally,” said Lauzon, managing director and deputy chief investment officer for Middlefield, to BNN Bloomberg on Friday.
“Over the next five years, I can see Netflix moving from the 150 million subscribers that they have now to double that to 300 million,” he says.
Lauzon thinks that with its subscriber base, the potential for further monetization is huge. “You just don’t know the black box streaming service — are they going to bolt on video games, are they going to bolt on music, what else can they do with this platform?” he says.
“We do own Disney. If you’re looking for yield, maybe a little less growth, maybe something in the consumer names, it would be fine. But if you’re just saying, where are we going to be in ten years, you’d probably get a better total return on Netflix,” he says.
Compared to Netflix’s current focus on content, Disney has many more moving parts for the investor to consider, with its 21st Century Fox acquisition bringing on added bulk in the form of TV networks, another movie studio and a controlling stake in Hulu. That amounts to a less clear trajectory, says Sagawa.
“With Netflix, you get a pure play on streaming, one with a very substantial head start,” says Sagawa, technology advisor at Middlefield, to BNN Bloomberg on Friday. “Disney starts with the 20-million Hulu subscribers and has sort of a three-pronged approach. It’ll be pretty complicated.”
“Ultimately, I think that Disney will be successful but investors will have to be patient because at the same time that they’re growing and streaming, they’re going to be watching ABC and ESPN deteriorating and so there’s kind of a give and take, whereas Netflix is all-in,” he says.
“Also, Netflix is completely international and all of their products play across multiple markets whereas Disney needs to plot how it’s going to retain the control of its content outside of the United States,” says Sagawa.
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