Netflix Close to Catching Up With Disney In Stock Market Value After Banner First Quarter
With the stock up 10% in midday trading, Netflix had a stock market capitalization of $146 billion versus $154 billion for Disney, whose stock price was up 2% on Tuesday. By the end of regular trading, Netflix closed up 9% at $336.06, giving it a market cap just shy of $146 billion, while Disney gained 2% with a valuation of almost $154 billion.
Including debt and subtracting cash, however, Disney is still worth about $40 billion more than Netflix in total enterprise value.
The big one-day gain in Netflix shares, already up 60% this year before Tuesday’s move, came after the company announced first quarter results that impressed investors. Netflix reported the fastest rate of revenue growth in its streaming service ever in the first quarter, as the addition of 7.4 million new subscribers and a price hike boosted sales 43% to $3.6 billion. Total revenue including the aging rental DVD business increased 40% to $3.7 billon. Analysts were expecting only 6.6 million new subscribers though about the same revenue.
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Even as the stock market sees Netflix close to catching Disney, the newcomer has a ways to go in catching the House of Mouse’s financial results. Over the past 12 months, Netflix’s revenue totaled $12 billion versus Disney’s $56 billion, according to data from Morningstar. And Netflix had under $600 million of net income compared to $11 billion at Disney. But investors look to the future, and the growth of cord cutting has bolstered Netflix while hurting Disney’s cable channels like ESPN.
The two entertainment giants have had many years of profitable partnership, with Netflix paying for the rights to carry Disney movies, including Star Wars and Marvel properties. But Disney (DIS) has said it’s going to start a competing internet video streaming service next year, priced at less than what Netflix charges and taking back the Star Wars and Marvel movie rights.
Netflix CEO Reed Hastings did not sound intimidated when asked about all the current and future competition, ranging from Disney to Hulu to Amazon (AMZN). “Whether our share of that grows or shrinks is really up to, do we produce great content, market it well, serve it up beautifully,” Hastings said in a video conference for investors on Monday night. “And if we do that really well, if we earn more of consumers’ time, then we continue to grow. And if we get lazy or slow, we’ll be run over, just like anybody else.”
Still, at least on Tuesday, Wall Street analysts were agog over the Netflix (NFLX) results. Pivotal Research analyst Jeffrey Wlodarczak raised his target on Netflix stock price to $420 from $400, KeyBanc analyst Andy Hargreaves raised his target to $385 from $300, and Morgan Stanley’s Benjamin Swinburne went to $370 from $350. Barclays analysts Ross Sandler and Kannan Venkateshwar raised their target to $370 from $335 and UBS analyst Eric Sheridan upped his target to $375 from $345.
“We continue to believe Netflix will scale to a large and highly profitable business, and 1Q results highlight continued momentum on both scale and margins,” Swinburne wrote in a report on Tuesday. “In a rare combination, subscriber growth exceeded expectations AND expectations for margin expansion for the year increased.”
(Update: Added closing stock prices.)