Did Netflix Just Set The Stage For Disney?

|
About: The Walt Disney Company (DIS), Includes: NFLX
by: Sven Carlin
Summary

The key rule for social media is: content is king. If you have the reach, then it is quality over quantity. I argue Disney has a big advantage over Netflix.

Further, Netflix might have actually helped Disney by creating a DTC market.

Disney is a great business, not really cheap from a value perspective, but cheap from a growth perspective.

Disney (DIS) is definitely a great business. It has a strong brand, improving margins, growing cash flows and a growing dividend. However, the current free cash flow and earnings yields of around 6.5%, don't make it cheap from a value perspective.

From a growth perspective DIS might be really cheap and investors could expect double digit yearly returns over the next decade, if the company manages to copy what Netflix (NFLX) did. Actually, it might do much better as Netflix broke the ice and created the direct to consumer (DTC). Given the frictionless switching among current and future DTC providers, it is likely that the one with the best content will make the most money. Unlike NFLX, Disney will not have huge additional content costs. Actually, Disney will manage to deliver better content, with better margins, that will enhance its profitability.

I have created 3 scenarios, that merely assume that what NFLX has done over the past 5 years, DIS will do over the next 5 years. Given that nobody knows what will happen in the future, the estimations bring to various returns. However, I estimate a return for investors between 6% and 14% per year.

Podcast/video content:

  • 0:00 Disney Stock Analysis
  • 1:01 Why is DIS a great business
  • 2:36 Fox acquisition
  • 4:25 Disney vs. Netflix
  • 7:12 3 investment scenarios
  • 10:28 Buffett and Disney

Podcast:

Video:

You can read the full article on my blog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.