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.
Netflix, Inc. (NFLX) is set to release second-quarter 2021 earnings on July 20 after the market closes.
Over the past six months, shares of the company have jumped 10%, trading at over $547.
Given that it's the world's largest video streaming company, it is worth taking a look at Netflix's fundamentals ahead of the results. A strong set of numbers in Q2 could help the stock regain investors' confidence, so let’s take a closer look at what analysts on the Street are expecting.
Q2 ProjectionsFor Q2, Street expects NFLX to report adjusted EPS of $3.16 and revenues of $7.32 billion.
Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $3.24 per share. (See NFLX stock charts on TipRanks)
Netflix has also provided guidance for Q2. The company forecasts revenues of $7.30 billion and earnings of $3.16 per share. The company expects to add 1 million new subscribers worldwide in Q2, down from 10 million raked up in the year-ago quarter.
Prior Quarter SnapshotIn the last-reported first quarter, revenues came in at $7.16 billion, an increase of 24% year-over-year, in line with the company’s guidance. Earnings per share in the quarter more than doubled to $3.75 against $1.57 reported in the year-ago period.
Despite the strong earnings beat, one thing that disappointed investors in Q1 was the lower-than-expected subscriber additions in the quarter. Paid net additions in the quarter totaled 4 million, well below the estimated 6 million.
What to Watch Out for in Netflix EarningsInvestors have largely been betting on the companies poised to benefit from the reopening economy, rather than on companies that have soared during the pandemic.
As the economy recovers from the COVID-19 outage, investors will be monitoring to see whether the streaming video powerhouse can restore subscriber growth after seeing a drop in sign-ups in Q1.
In the Q1 earnings call, Netflix said in a statement that a COVID-19 pull forward last year and a lighter content slate in the first half of 2021 could lead to slower membership growth in Q2. So, without a doubt, Netflix's subscriber growth numbers in the upcoming quarter will be questionable.
On a brighter note, Netflix has been aggressively expanding its original content library in the increasingly competitive streaming space. Netflix plans to spend more than $17 billion in cash on content this year. The company also plans to launch more originals compared to 2020.
The streaming giant is expected to project a solid second half of the year. The company is betting on the return of new seasons for some of its biggest shows and films to fuel growth. These include Sex Education Season 3, The Witcher Season 2, Stranger Things Season 4, and You Season 3. Original movies slated for release later in the year include The Kissing Booth finale, Red Notice, Don’t Look Up, Robin Robin, Too Hot to Handle, and A Week Away.
Besides for those, the streaming giant recently announced three new animated comedy series — A Tale Dark & Grimm (Fall 2021), Dogs in Space (Fall 2021), and Super Giant Robot Brothers (2022) for kids and families around the world.
It is worth noting that the company is focusing on the value of content and is trying to make its content accessible to as many people as possible.
Markedly, Netflix's rising popularity in the Asia Pacific (APAC) and Latin America (LATAM), owing to its diverse content offerings in regional languages, is likely to fuel top-line growth in the upcoming quarter.
Another key takeaway from Netflix’s quarterly letter to shareholders in Q1 was the churn. Churn measures the percentage of existing subscribers who leave the service, a crucial metric for Netflix in this competitive streaming space.
To note, churn was down year-over-year, while viewing per household was up year-over-year in Q1, indicating that Netflix’s fundamentals remain intact.
Netflix stated in a press release, “As always, we’re focusing on the fundamentals of our business, which remain healthy….“We are optimistic about the future and believe we are still in the early days of the adoption of internet entertainment, which should provide us with many years of growth ahead.”
Recent Key DevelopmentsSeveral recent deals should be of interest to Netflix investors. Ahead of the second-quarter earnings announcement, Netflix expanded its deal with Bridgerton producer Shonda Rhimes. Per the terms of the deal, Netflix and Shondaland will produce and distribute feature films, as well as potential gaming, virtual reality, and live content.
In another development, on June 21, Netflix partnered with Amblin Partners, the company headed by Steven Spielberg, to produce multiple new films per year.
Additionally, on June 10, Netflix launched its first owned-and-operated online retail outlet, Netflix.shop. The shop sells products directly to consumers, helping Netflix to establish a foothold in the e-commerce space. At the online shop's launch, the company debuted a series of anime-inspired souvenirs by three up-and-coming designers, Nathalie Nguyen, Kristopher Kites, and Jordan Bentley. The online store is currently available only in the United States, but it will soon be expanded to other countries.
Also, on June 7, Netflix signed a multi-year first-look contract with Jennifer Lopez and her production company, Nuyorican Productions. The production house will empower diverse female actors, writers, and directors by producing feature films, television series, and unscripted content.
These partnerships and agreements are expected to strengthen its original content offerings of TV series, documentaries, and feature films across various genres and languages through the rest of 2021.
Analysts’ Opinions on NetflixAhead of the Q2 earnings release, JPMorgan analyst Doug Anmuth reiterated a Buy rating on the stock with a $600 price target (9.5% upside potential).
Anmuth remains positive about the company’s earnings results going into Q2, stating, "We remain positive on the shares into earnings and 2H21 as we believe NFLX could have its strongest 6-month content slate ever, it gets greater distance from the pandemic pull-forward, & NFLX should make more progress in under-penetrated international markets.”
The analyst now forecasts net additions of around 2 million in Q2, up from 1.6 million previously, thanks to strong content in the second half of June, including Fatherhood, Manifest, and The Ice Road.
Another analyst, Scott Devitt from Stifel Nicolaus, reiterated a Buy rating on the stock with a $560 price target, implying a 2.2% upside potential to current levels.
Devitt expects the results to be in line with the consensus estimate. The analyst is of the opinion that “pandemic-related pull forward in recent quarters and a lighter content slate stemming from production delays last year have resulted in softer expectations for 2Q.”
However, Devitt remains positive about the second half of 2021, stating, “We expect accelerating subscriber additions in 2H:21 supported by a stronger content slate as the company moves past a period of pull-forward digestion and fewer content additions.”
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 26 Buys, 7 Holds, and 3 Sells. The average NFLX price target of $606.39 implies 10.7% upside potential from the current levels.
NFLX scores an 8 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Bottom Line on NetflixAs the economy recovers from the pandemic and people return to the outdoors, it will be interesting to see whether Netflix will be able to add enough new subscribers in Q2 to sustain the recent growth rate.
Regardless, there is no denying the fact that Netflix, with its unique and vast offerings, continues to be the leader in the streaming video space. Its growing library of original content and its international expansion strategy make it well-positioned for future growth.
Disclosure: Shalu Saraf held no position in any of the stocks mentioned in this article at the time of publication.
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.
Netflix (NFLX) has extended an arrangement with Comcast’s (CMCSA) Universal Filmed Entertainment Group (UFEG) that gives it exclusive rights to stream certain animated films in the U.S.
Netflix currently streams animated content from Universal’s Illumination studios. Under the new agreement, it will receive the rights to Universal’s DreamWorks productions as well. (See Netflix stock charts on TipRanks).
“We are thrilled to continue our partnership with UFEG to bring more films from Illumination and DreamWorks Animation to our Netflix audience…Netflix families love watching and rewatching animated films, and this deal allows us to expand our library to bring our audience more of what they want to watch,” said Colin Morawski, Netflix’s Director of Studio Licensing.
“Universal Filmed Entertainment Group produces some of the biggest animated franchises and boldest originals…This exciting agreement further demonstrates the importance of that content to our distribution partners,” commented Peter Levinsohn, Universal’s Chief Distribution Officer.
DreamWorks films will go to Netflix after four months of streaming on Comcast’s Peacock platform. The major DreamWorks animated series coming to Netflix in 2022 include Puss in Boots and Minions. As part of the deal, Netflix will license the rights to more Universal productions four years after their release.
JPMorgan analyst Doug Anmuth recently reiterated a Buy rating on Netflix stock with a price target of $600. Anmuth’s price target suggests 10.97% upside potential.
“We remain positive on the shares into earnings and 2H21 as we believe NFLX could have its strongest 6-month content slate ever…NFLX should make more progress in under-penetrated int’l markets,” noted Anmuth.
Consensus among analysts is a Moderate Buy based on 26 Buys, 7 Holds, and 3 Sells. The average Netflix price target of $606.39 implies 12.15% upside potential to current levels.
NFLX scores a 6 out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock is likely to perform in line with market averages.
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