Photographer: Jason Alden/Bloomberg© 2018 Bloomberg Finance LP

Disney is beating Netflix on Wall Street. Over the last six months that is. 

Since last July, Disney’s shares have gained 1.51%, while Netflix’s shares have lost 36.57%. And the performance gap between the two stocks becomes even bigger when Disney’s dividends are taken into consideration.


That’s a big change in fortunes for the two companies. Netflix’s stock was beating Disney’s up to last July by a huge margin. In fact, Netflix’s stock was among the hottest stocks on Wall Street up to last July.

For a couple of well-known reasons. One of them is that Netflix has been gaining subscribers both at home and abroad at exponential rates.  Meanwhile, no serious competitor had emerged to challenge its dominance in the movie streaming space. Until last July, that is, when Disney announced that it is coming up with its own streaming services by March of 2019.


Apparently markets think that Disney has the content, the core competence, and the deep pockets to come up with a “bundle” that could challenge Netflix. Thus, the big decline in Netflix’s stock since the Disney announcement.


Then there are concerns over Netflix’s growing debt, which takes a big chunk of Netflix’s earnings to service it—see chart.

Netflix’s EBITDA/Interest ExpensesKoyfin


Worse, sooner or later the company needs to either issue new debt or new shares to pay for the old debt. 


Both choices have a negative effect on the company’s shares. Issuing new debt could lower the company’s credit rating, and therefore, its borrowing cost and profitability.  Issuing more shares would be dilutive to shareholder equity.


To be fair, Netflix has a third choice: raise the price of its services. But that could be extremely difficult, especially among its younger subscribers who are price sensitive. Netflix knows too well what happened last time it raised the price of its services.


But there’s another, more important reason, behind Netflix’s stock big drop in recent months: market saturation. It’s a fact that they are running out of new subscribers at home and abroad, as was discussed in a previous piece here.


The bottom line: The best days for Netflix are behind it. But not for Disney, which may find again its old glory days. 


That’s why Disney is a better bet than Netflix in 2019.



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