Why Netflix Stock Hits Record Highs as Walt Disney Stock Plummets

Satori Studio / Shutterstock.com


Stock prices at Walt Disney, the happiest company on Earth, have taken a tumble. Meanwhile, Netflix stock is flying higher than ever.

Disney reported a record high third quarter net income of $2.48 billion — an 11 percent increase from late June last year — with revenue increasing 5 percent to $13.1 billion. Regardless, Disney stock fell as company revenue for the quarter was $100 million short of Wall Street’s $13.2 billion expectations, causing it to break a seven-quarter streak of surpassing sales projections. Investors didn’t take well to the news, causing stock prices to drop 8.6 percent on Wednesday to $111.18.

Conversely, Netflix stock rose to record-breaking levels this week, increasing more than 8 percent to a peak of $122.79 per share. Analysts at Guggenheim Securities advised investors to build positions in the company up to $160.

Related: How Much Is Netflix Worth?

Why Drop in Walt Disney Stock Could Be Temporary

Walt Disney’s television division — which has been a major driver in the company’s finances — has been suffering. The company owns ESPN, which lost approximately 4.3 percent of subscribers between 2012 and 2014, bringing subscription numbers down to 94.6 million, according to SNL Kago. Regardless, Disney CEO Bob Iger has been unwilling to succumb to pressure to offer ESPN as a standalone online subscription despite the success of Time Warner’s decision to offer HBO Now.

Building Wealth

“We don’t really see dramatic declines over, say, the next five years or so,” said Iger about the company’s cable business. “Therefore we’re not taking what I’ll call radical steps to move our product into over-the-top businesses… because we don’t think right now that it’s necessarily the greatest opportunity. We just don’t think it’s necessary.”

While Disney falls behind in television, analysts are eager to see if December’s release of “Star Wars: The Force Awakens” will boost company profits. The movie is the first new film addition to the Star Wars franchise in more than a decade. Morgan Stanley has already predicted box office earnings of $1.95 billion, and many feel that number is conservative. This amount also doesn’t include merchandise and other revenue brought in by the film.

Iger has touted “Star Wars” as “probably the most valuable film franchise that ever existed.” Yet, he has taken a cautious approach to earnings estimates. “While the enthusiasm is I think rather apparent, we just want to be careful that the world doesn’t get ahead of us too much in terms of the estimates,” he said.

Netflix Shows No Signs of Slowing Down

Consumers are moving away from expensive cable packages, instead opting for lower cost alternatives like Netflix, Hulu and Amazon Instant Video. In fact, analysts estimate that approximately 3 million homes have dropped cable packages over the past few years.

Netflix has seen great success in recent years. The company is up for 34 Primetime Emmy awards this year. It received nominations for original programming, including “House of Cards,” “Orange is the New Black” and “Unbreakable Kimmy Schmidt.”

Big things are on the horizon for Netflix, too. This month, the streaming service will begin offering “The Hurt Locker,” “Two Days, One Night,” “Girl Meets World” and “Byzantium.” In 2016, Netflix will be releasing the highly anticipated “Fuller House” and the supernatural drama “Montauk,” among other series.

Photo credit: scyther5 / Real Life Design / Shutterstock.com