(Bloomberg) — Investors looking for racy growth in streaming video these days are turning to a 98-year-old entertainment company rather than long-time darling Netflix Inc.
Walt Disney Co. added 11.8 million subscribers for its Disney+ service in the quarter ended Jan. 1, far above the 8.17 million that Wall Street had projected. Netflix, by contrast, said last month it would add only 2.5 million new customers this quarter.
With business picking up at Disney’s theme parks as the pandemic eases, its shares are starting to recover from their slump from the record set in March and are set to rally on Thursday. They’re also at a growth-stock multiple of 33.6 times estimated earnings, about the same as Netflix, and analysts rate Disney more highly than the upstart.
“Confidence in Disney+ awakens on this print,” Wells Fargo analyst Steven Cahall wrote in a note, calling it his top growth idea. “Disney+ cleared a high bar.” He has buy ratings on both Disney and Netflix.
Netflix, which went public in 2002, and Disney had similar stock market values as recently as late December, at about $275 billion. Disney shares rose 5% Thursday morning in New York, moving closer to $300 billion while Netflix is below $180 billion.
Disney shares are close to erasing their loss for the year, while Netflix is down 32%.
Since its launch in November 2019, Disney+ has added almost 130 million subscribers, a pace at which it could overtake Netflix’s 220 million-plus user base in the next few years.
The Disney-Netflix contrast illustrates the problem for tech stocks more broadly: Analyst expect big tech earnings growth to slow sharply. Deutsche Bank strategists said growth at the likes of Apple Inc., Google owner Alphabet Inc. and Amazon.com Inc. aren’t likely to beat the rest of the S&P 500 companies in 2022, undermining one of the core rationales for owning the stocks.
Disney’s price-earnings multiple is well above that of the NYSE FANG+ Index, home to those and other tech stocks that have long been favored by growth investors. It’s also emerging as a clear winner with Wall Street analysts: The stock is more highly rated than Netflix and Apple, based on a Bloomberg system for buys, sells and holds.
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(Updates share price in fifth and sixth paragraph)
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