It's been a notable week, with Netflix (NFLX 2.96%) picking up the pace in the market cap race. The world's leading premium streaming service surpassed Comcast (CMCSA 0.84%) in terms of market capitalization on Wednesday. A day later it was muscling ahead of Disney (DIS 2.33%) to command the largest market cap among media companies.
The first disclaimer -- as you rifle through headlines proclaiming Netflix as the world's most valuable media company -- is that market cap is an incomplete measuring stick. Comcast and Disney also carry tens of billions in debt on their balance sheets, suppressing the value of what either company would be worth if you were to actually buy the entire entity. Comcast's enterprise value of $210 billion and Disney's price tag of $179 billion are still higher than Netflix with its enterprise value of $154 billion. And that's not the only reason Netflix isn't necessarily more valuable than both companies at the moment.
Tale of the tape
Netflix may be inching ahead of Disney and Comcast in terms of market cap this week, but even that metric is a fluid figure. Disney is in the process of trying to close on a deal for key Fox (FOXA) (FOX) assets that was originally valued at $52.4 million. If the all-stock transaction does go through come early next year, it will naturally jack up Disney's market cap. If Comcast is successful in swiping those assets away with a richer all-cash deal, the debt incurred will naturally boost Comcast's enterprise value.
We obviously shouldn't diminish Netflix's accomplishments. The entertainment disruptor went public 16 years ago -- today is the day it hit the market back in 2002 -- at a mere $300 million. Netflix has generated game-changing wealth for its early believers, and I should know. However, it's hard to take this market cap race seriously; and not just because Netflix is still a distant third in enterprise value and who knows where it will be in terms of market capitalization once the fight for Fox assets plays out.
A Netflix bear will argue that Disney and Comcast are generating a lot more revenue and certainly earnings than Netflix, but I'm obviously not in that camp. Netflix continues to be my portfolio's largest holding even after selling 95% of the original stake I bought in 2002.
However, like a movie set at a Hollywood soundstage, it seems like we're only seeing what we need to see here. Netflix is a new media darling, and while it may have at least temporarily wrestled away the market cap crown from Disney and Comcast, do you really think that Netflix would fetch a higher price tag than either company if a buyout were to be announced next week? There aren't too many companies out there that can afford to buy any of the three, but if it were to happen, you would think that it would come from a tech giant hungry for the content catalog that only Disney and Comcast can provide.
Netflix is amazing. It's officially a global juggernaut now that its international subscriber count has surpassed its domestic streaming accounts. Revenue soared 40% in its latest quarter, something that you're just not going to see out of Disney or Comcast.
Momentum is in Netflix's corner, and that's why it's ascending. It's an all-weather champ. If we slip into a recession we'll become homebodies wooed by Netflix's compelling value proposition and growing catalog of content. If the economy continues to expand, there's no reason for Netflix to sputter.
We can applaud this week's milestones, the byproduct of a soaring Netflix stock as well as Disney and Comcast merely marching in place for months. However, being the most valuable media company by market cap seems like a hollow distinction -- and one that is bound to fluctuate wildly in the months to come.