Media

Why Is Netflix's Market Value Higher Than Disney's?

Douglas A. McIntyre

Published: August 5, 2020 6:35 am

Walt Disney Co. (NYSE: DIS) is reeling from the effects of the pandemic on its revenue. It posted a loss of $5 billion for the most recent quarter. The most damage was done to its theme parks. COVID-19 has hit Disney so hard that its market cap has dropped to $212 billion. Much smaller Netflix Inc. (NASDAQ: NFLX) has a market cap of $225 billion. It seems streaming movies is a better business than doing all that Disney does. The Magic Kingdom does stream video content, but it owns many other assets, the fortunes of which are mostly in trouble.

Netflix has about 190 million streaming customers around the world. Disney announced that its relatively new Disney+ has over 50 million. Combined with its other streaming services, the Disney count is approximately 100 million. The growth of these businesses was the only positive news Disney had to offer as it presented results.

Disney’s revenue dropped 42% to $11.8 billion. The primary causes were that theme park revenue plunged 85% to $983 million. Studio revenue fell 55% to $1.7 billion. Movies theaters around the United States are mostly closed. So are many overseas.

Disney+ and the other streaming services brightened the mood of investors. So did Disney’s decision to release what is likely to be a blockbuster film online. “Mulan” will be released on September 2 and will cost Disney+ viewers $29.99. Disney will not need to split the revenue with theater owners, a plus. Presumably, the release also will drive a new wave of Disney+ subscribers.

The market cap of Disney has dropped below that of Netflix because Wall Street views Netflix as the leader of the new world of entertainment. It is not burdened by the risks of revenue from TV shows or cable. It does not have vast theme parks and cruise ship businesses, the infrastructures of which are expensive to support. The only thing Disney and Netflix have in common from a cost standpoint is that they produce their own programming.

In its most recently reported quarter, Netflix had revenue of $6.1 billion, up 25% year over year. It made $720 million, compared to $271 million in the same quarter a year ago. Streaming subscribers hit 193 million, up from 151 million. The subscriber growth was 27%. The pandemic helped push the subscriber count higher, just as it did with Disney.

The only complaint investors have about Netflix is what it pays for original programming. The company has $15.3 billion in long-term debt, a great deal for a company with its current net earnings. Given its market value, that number is ignored.

Investors nearly ignored the results of Disney’s nonstreaming businesses. The stock was not dented by its overall loss. Instead, those investors looked at the streaming service and wondered if its subscriber count will ever match that of Netflix. The theme parks have become an albatross.