Disney might not exactly be in celebration mode on the second birthday of its streaming service Disney+.
After spending most of the year with a market value above $300 billion, Disney fell from grace following its disappointing fiscal Q4 financial results after the market close Nov. 10. During the following trading session, Disney’s stock tanked 7% for its worst day since June 2020, and its market cap closed below $300 billion for the first time since Jan. 27.
On the other hand, rival Netflix has had plenty to celebrate since it released Q3 results on Oct. 19. The stock surged nearly 7% since its report. And thanks to recent hits like “Squid Game,” Netflix currently has a market cap of $302 billion, as of market close Nov. 12. The streaming giant first crossed that milestone on Oct. 29.
Okay, so you may be wondering why VIP+ is making a big deal about $300 billion. Consumers are notoriously fickle, and investors can be too. One bad quarter for Disney+, and a good bunch already jumped ship.
If you follow the markets in any capacity, then you know everyone hypes up nice round numbers. That’s why it’s always a big hoorah every time the Dow clears a thousand-point milestone, with Dow 36,000 being the latest.
While some may argue that these round numbers don’t actually reflect anything significant, they actually do. They are big indicators of investor sentiment, and sentiment and emotion are what drive the markets.
For media companies, streaming is the future and investors are ready to giveth and taketh away depending on the growth performance of those streaming platforms. To be very clear, Disney and Netflix are completely different companies, and the only real comparison is between their two streaming businesses even though Netflix has been in the game way longer than Disney.
That being said, despite being around for just two years, Disney+ is firmly holding onto the number two spot, behind Netflix.
There are a couple of factors to consider when thinking about Disney+’s early strength and current struggles. The timing of Disney+’s launch on Nov. 12, 2019, was both a blessing and a curse. It came a few months before the COVID-19 pandemic hit, when people around the world were suddenly forced to stay home and find ways to entertain themselves.
Every other aspect of Disney’s business was crushed. Theme parks had to close indefinitely, and TV and film studios had to halt production. Disney+ was a life raft for a company that saw every other aspect of its business get pummeled under the immense weight of an uncertain macroeconomic backdrop.
During those dark times, the light at the end of the tunnel for Disney was the fact that people were under quarantine restrictions, and as a result, at-home entertainment consumption skyrocketed. Children couldn’t go to school and adults couldn’t go into their work offices. Thanks to that shift in consumer behavior, at-home entertainment service providers including Netflix and Disney saw inflated engagement for the better part of 2020.
Streaming platforms saw sky-high subscription figures, but most knew that that kind of “pull-forward effect,” as Netflix management first put it, wouldn’t be sustainable once life returned to normal and COVID was a thing of the past.
Now that vaccines are being distributed, and life is slowly returning to normal, this volatility in Disney+ subscriber figures and Disney stock should be viewed as more near-term noise than long-term worry. Legacy media companies are furiously shifting their businesses from a profitable linear-first model to an unprofitable streaming-first model. That kind of massive change takes time, money and patience.
Disney+ added a much fewer-than-expected 2.1 million global paid subscribers in the previous quarter, but the service has a whopping 118 million subs only two years after launch. That’s still impressive by any stretch of the imagination.
Friday, Disney unveiled a slew of new content coming to the platform during its first-ever Disney+ day. But now is the real test. Now, CEO Bob Chapek will have to find his groove on the content side to spark that next phase of growth for Disney+. Relying on what worked last year is just not enough anymore.
All that being said, expect this market valuation tug-of-war between the two biggest streaming services to persist — which VIP+ noted in May 2020. Focus is on the next major shift, which could very well be in Disney’s favor.
Disney first surged past $300 billion in market value following its investor day on Dec. 11, where it provided an optimistic long-term guidance for Disney+. Though a formal date hasn’t been announced for investor day this year, perhaps good news delivered then could be a much-needed boost to regain its place in the coveted $300 billion market cap club.