For years, Netflix (NFLX 4.17%), the pioneer of the streaming industry, had the market mostly to itself. However, over the last 24 months, major rivals started entering the fray -- not least of which was the entertainment giant Walt Disney (DIS 1.54%).
In an unprecedented release of a service, Disney+ went from zero to 103.6 million subscribers in close to 17 months. As a result, Disney is emerging as the primary competitor to Netflix's dominance in the streaming market. Here's a look into how the battle played out in the most recent quarter.
Netflix adds fewer than expected subscribers in the quarter
Netflix reported its fiscal first-quarter (ended March 31) results on April 20. In it, the company revealed it added nearly 4 million subscribers in the quarter. The results were disappointing for shareholders, who were expecting it to report adding 6 million. Further upsetting shareholders, Netflix guided them to expect only 1 million additions in the second quarter.
Netflix added 3.98 million subscribers in the first quarter. Image source: Netflix.
That highlighted fears among shareholders who have been worried about the effects of increasing competition on Netflix's business. Still, management did not attribute the slowdown in subs growth to competition. Instead, it mentioned that the rapid growth in subscribers during the pandemic in 2020 pulled forward the demand it would have normally seen in 2021. Indeed, over its past five quarters, Netflix added roughly 40 million.
Despite all of management's reassurances, you have to believe that growing competition has at least some negative effect on Netflix's business, whether that be in slowing subscriber growth or reducing pricing power that Netflix commanded.
Disney reiterates its long-term target for Disney+
Disney reported its fiscal second-quarter (ended on April 3) results on May 13. The House of Mouse revealed that it added nearly 13 million (12.6 million) streaming subscribers overall in the quarter. That's more than three times the subscribers that Netflix added.
Disney+ reaches 103.6 million subscribers. Image source: Disney.
Note that it may not be an apples-to-apples comparison. Disney has three main streaming services (Disney+, Hulu, and ESPN+), where Netflix has but one. Still, if you compare Disney's most popular service (Disney+) against Netflix head-to-head, Disney still wins out -- Disney+ added 8.7 million subs to Netflix's 4 million additions.
And Disney's most popular service Disney+ generates an overall average revenue per user (ARPU) of $3.99, while Netflix generates an ARPU of $7.39 in its lowest-priced market. In other words, Disney+ is priced much lower than Netflix.
Still, the substantially higher subscriber additions might suggest that Disney is making gains in the streaming market against Netflix. Furthermore, while Disney does not provide quarterly guidance on subscriber growth, it reiterated its long-term target of reaching at least 230 million Disney+ subs by the end of 2024. That would require rapid growth from its current total of 103.6 million.
Meanwhile, Netflix already has 207.6 million global subscribers. However, if Disney continues at this pace of growth and hits its subscriber targets by 2024, it may be crowned the new champion of the streaming market -- that is, of course, if one of the other competitors or an upstart does not surprise investors and surpass both Disney and Netflix.
Investor takeaway
The rapid ascent of Disney's streaming segment highlights the value of its content library and its ability to create new content that people love to watch. And now that its theme parks are reopening, things are getting back on track for this entertainment giant. Now might be a good time for investors to start accumulating a position in Disney stock.
