The Introduction of Disney+

Hulu recently announced plans to lower its price of its subscription plan to $5.99 from $7.99 while Netflix did the opposite and increased its subscription plan to $13. This represents a 74% difference in pricing between the two streaming giants. Netflix is no doubt a leader in the streaming service industry, however, Netflix is projected to face intense competition in the streaming space from giants such as Amazon, Disney, Apple, Alphabet, Walmart, and Facebook. Of all these services, I believe Disney is in a great position to gain a considerable amount of market share within the industry.
Disney owns a 60% stake in Hulu taking into account the Fox acquisition (which Disney recently acquired for $52.4 billion in stock). I have used both Netflix and Hulu, and after my experience with both services, I would actually prefer Hulu because the content between both services are similar but Hulu is a lot cheaper. I am a huge fan of Sci-Fi and that also skews my preference towards Marvel shows. The Walt Disney Company will be releasing its own video streaming service (Disney+) in the United States on September of 2019. The service will complement Hulu and will be a fierce competitor to Netflix. Some shows slated for Disney+ are the first-ever live-action Star War series: The Mandalorian and a live action Marvel series based on the Norse god of mischief, Loki.
Financially, Netflix is in a bit of a cash burn as they continue to out-spend to produce new content. I do appreciate the need for new content as a consumer but it is difficult to envision this as being sustainable. A comparison of both Netflix and Disney’s financial statements tells it all. Netflix is currently over-valued when compared to its peers. With a P/E ratio of 120.15, way above the P/E ratio of the S&P 500 at 20.21, Netflix is trading at a multiple of 6x when compared to the S&P 500. Even when you compare it to the Nasdaq 100 which has a P/E ratio of 22, you still come to the same conclusion. Compared to Disney, Netflix is much more leveraged and generated a much lower net income. This net income is important to fund its future capital else Netflix will have to keep borrowing or has to raise more capital by issuing additional equity.
Shares of Disney, Netflix, and other steaming companies can be purchased on M1 Finance for free. It is a free trading platform I personally use for long-term investing.


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