A pricing war between Netflix, Inc. (Nasdaq: NFLX) and Walt Disney Co. (DIS) is in the works.
After reporting quarterly earnings on Thursday afternoon, Disney officials attracted a lot of attention when they said the company will be prioritizing subscriber growth when it launches its much-anticipated streaming video service that looks to compete directly with Netflix.
Disney’s third-quarter earnings and revenue missed analyst consensus estimates, but the stock was up nearly 3 percent on Friday after management demonstrated just how serious it intends to be about building up its streaming services.
“I can’t get specific with you yet because we haven’t determined it [subscription pricing] yet,” Disney CEO Bob Iger. “It will be substantially below Netflix because we’ll have substantially less volume.”
The idea that Disney will be looking to undercut Netflix’s prices while Netflix itself has been raising prices didn’t sit well with Netflix investors. NFLX stock dropped 2 percent Friday.
Wells Fargo analyst Marci Ryvicker says Disney’s commitment to subscriber growth rather than margins is good news for DIS stock.
“We finally got some glimpse into pricing, which will be ‘significantly less than Netflix’ (but probably not as low as All Access, in our opinion), in order to convert DIS’s ‘gigantic’ customer base into subs – with pricing likely to move higher as more and more content is added,” Ryvicker wrote in a research note, quoting Iger in several places. “Given how just about all our stocks tend to trade on sub numbers, we view this strategic comment as an incremental positive.”
Netflix recently raised the price of its standard monthly subscription from $8.99 per month to $9.99 per month. CBS Corp. (CBS) charges $5.99 per month for its limited commercial All Access subscription.
Disney plans to launch its own ESPN sports streaming service in 2018 and plans to shift all its Netflix content to its own streaming service in 2019.
With Disney uncertainty lingering for at least another year and Netflix’s estimated 2018 price-earnings ratio now above 85, Baird analyst William Power says additional upside may be limited. “We remain constructive on the subscriber momentum but also believe much is already priced in, particularly with ramping content costs and competition,” Power says.
Wells Fargo has…
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