Shortly after the pandemic of COVID-19 brought the world economy to its knees, two of the world's largest media companies, Netflix (NASDAQ 🙂 and the Walt Disney Company (NYSE :), were on different paths.
While home orders increased demand for Netflix video streaming services, the outbreak hit Disney's diversified media empire harder. The theme parks were closed, movie releases delayed, and sports events were canceled on the company's TV networks.
Four months after the pandemic, it may be a good time to assess which media file offers a better risk-reward proposition for investors looking for a more favorable entry point. Let's take a deeper look.
Netflix: Upward Trajectory Continues
Netflix has been one of the strongest achievers of 2020, when the pandemic kept people indoors, boosting demand its streaming service.
The stock has increased by 56% from its low on March 16. It reached a record high of $ 474.01 intraday on Tuesday, June 23, but fell as much as 2.5% on Wednesday, closing 1.80% at $ 457.85 in the wide-range sale on the stock exchange.
Many investors wonder how big and fast the magnitude and speed of the recent boom in Netflix stock can be. The answer: It depends on how quickly Netflix can turn home winnings into real numbers.
In this regard, the company's latest earnings guideline sent a mixed message, leaving some room for a negative surprise.
"As with other home entertainment services, we are seeing a temporary increase in viewership and increased membership growth," the company said in a letter to investors in late April when it was reported.
"We expect the number of viewers to decrease and the number of members to decrease as the imprisonment in the house ends."
By adding a record number of 15.8 million subscribers in the past quarter, Netflix showed this to be the top choice for billions of people trapped in their lockdown, many of whom are binge-watching such original Netflix shows & # 39; s like "Tiger King" and "Love Is Blind" to quarantine.
All of this is already fully priced in our opinion. We therefore believe that the stock rally could pause as investors wait to see if subscribers keep their connections, even as the US moves to reopen the economy when many states adhere strictly
Disney: Unchartered Territory
Unlike Netflix, Disney is in the midst of a nasty recession. The companies – which thrive on shared group experiences – are suffering from the worldwide spread of COVID-19 that has forced the closure of its theme parks, resorts, cinemas and cruises around the world.
Few entertainment companies are as exposed to the effects of the pandemic as Disney. & # 39; The world's largest entertainment company has not only closed theme parks, but also seen receipts disappear when cinemas were closed.
Considering all this, the performance of Disney stock depends very much on how quickly the pandemic is controlled. Unfortunately, the news on that front is not encouraging. Data suggests that Florida and California – where Disney theme parks are located – are seeing a wave of coronavirus cases. They set daily records for new cases yesterday, while Houston said the intensive care unit beds have a 97% capacity.
Indeed, late yesterday, Disney announced that it was delaying the reopening of both the resorts and theme parks in Florida and California, which were scheduled to resume on July 17. A new reopening date has not yet been announced.
Disney stock closed 3.88% yesterday, at $ 112.07. The stock has lost a quarter of its value so far this year.
In this bleak situation, where the future is full of uncertainty, it is hard to get excited about Disney's stock. A bright spot in this otherwise gloomy view: the company's recently launched Disney + video streaming service.
Supported by orders at home, the service is expanding rapidly. It has attracted over 56 million subscribers since its launch in November. While Disney + still burns cash, it is in a strong growth mode and can become one of the company's major revenue-generating units in the post-pandemic world.
Bottom Line
Now that Netflix shares fully determine the impact of the wind from the pandemic and Disney's path to renewed profitability remains uncertain as the pandemic remains Continuing to rage, both within the US and globally, both stocks do not seem to offer much upside in the short term. walk.
That said, we find Disney stock attractive to long-term investors who believe that the virus will eventually be defeated and that the company's entertainment assets will not be inactive for too long. Such investors could be a good starting point if current sales accelerate.
