SAN FRANCISCO - Wall Street’s reaction so far to Walt Disney Co.’s long-awaited streaming service suggests investors believe the competition may not be as crushing as expected for entertainment rival Netflix Inc.
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Netflix Chief Executive Reed Hastings warned in September that competition arising from the entrance of Apple, Disney and NBC to the global streaming market would spark a surge in content costs, adding to worries about Netflix’s already slowing subscriber growth.
Apple earlier this month launched its streaming video service, with a slim offering of original shows, for $5 per month, compared to Netflix’s $13 per month standard price. AT&T’s HBO Max is set to launch in early in 2020.
Disney’s $7-per-month service includes family-friendly new and classic TV shows and movies from some of the world’s most popular entertainment franchises. But Disney+ steers clear of content aimed at more mature audiences, often popular on Netflix, giving consumers reasons to pay for both, said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco.
Following its recent surge, Disney’s stock is trading at 23 times expected earnings, its highest forward earnings valuation since 2004, according to Refinitiv data. As investors reconsider the value of Netflix, its forward earnings multiple has been trading at under 60 since September, far below its average of 148 over the past five years.
Chuck Carlson, chief executive of Horizon Investment Services in Hammond, Indiana, has been advising clients to avoid Netflix due to its valuation, rising production costs and concerns about weak subscriber growth.
“Because Netflix is the leader, it has the most to lose, and now we are going to start seeing pretty steady data points coming out from all of the other streaming services,” Carlson said. “It still seems to be a tough story for Netflix.”