Netflix won’t be hurt by Disney+, Mike Newton says

The curtains have come down on another round of earnings for entertainment giants Disney (Disney Stock Quote, Chart, News NYSE:DIS) and Netflix (Netflix Stock Quote, Chart, News NASDAQ:NFLX) and the moral of this story is clear: the two rivals can live in harmony.

Not only that, says Mike Newton of Scotia Wealth, but Netflix is looking like a buy. Disney+ dropped its fiscal first quarter results on Tuesday, showing solid top and bottom line beats as the company ramped up its subscriber numbers for newly launched streaming service Disney+.

Revenue for the Q1 came in at $20.86 billion compared to the $20.79 billion expected by analysts, while EPS stood at $1.53 per share versus the Street’s average guess at $1.44 per share.

Disney reported 26.5 million subscribers for Disney+, which came online last fall to much fanfare over the bounty of content on offer, from Disney’s own stock of titles to its Marvel and Lucasfilm holdings.

But while the subscriber gains were a positive for the company and stock —up from just ten million subs when the service debuted on November 11— they also told a different tale in that Disney’s gains might not necessarily entail Netflix’s losses.

“It is clear Disney+ engagement trails that of Netflix and this reinforces our view that Disney+ is not a substitute,” said Bank of America, which noted after the quarterly release that Disney+ viewer hours “widely trail those of Netflix.”

The markets seemed to agree, pushing NFLX up three per cent on Tuesday and Wednesday combined.

Newton says not only is Netflix coming out a winner, the real loser in this contest is broadcast television.

“The recent showing of Disney+ was to me encouraging for Netflix. It shows that these two streaming giants can live in concert together,” said Newton, director of wealth management at Scotia Wealth, who spoke to BNN Bloomberg on Wednesday. “I don’t think this is a mutually exclusive space.”

“[Netflix’s] role as a pioneer cannot be discounted. I still think they have one of the best user experiences, I still really enjoy their content and it really emphasizes the fact that typical linear TV is going down the tubes and these guys are going to be winners,” says Newton.

“What’s really interesting, I think, is that internationally Netflix is still growing rapidly. We saw that in their last print. So, quit looking for new things. Netflix is right in front of you and I think it represents pretty good value,” he says.

Netflix swooned mid-year in 2019 on poorer quarterly subscriber numbers, with the stock going from the $380 range in early July to $252 by late August. The stock has all but made up that ground now, climbing back up to the $370 range as of Wednesday’s close.

Netflix released its fourth quarter results on January 21, showing revenue up to $5.47 billion, slightly better than the consensus expectation of $5.45 billion and $1.30 per share in earnings. Subscriber numbers came in lighter than expected at 550,000 additions domestically but better internationally at 8.33 million additions.