Walt Disney (DIS 0.29%) and Netflix (NFLX -0.33%) are the two leading players in the streaming content industry. Netflix is the pioneer, having started its service more than a decade ago. Disney only entered the fray in earnest in November 2019 with its flagship Disney+ service.
Even though Netflix has a substantial head start, Disney is catching up fast. And according to its most recent updates, the likelihood of Disney surpassing Netflix in 2022 just got better.
Momentum is increasing for Disney
Indeed, Disney added 17.4 million streaming subscribers during its most recent quarter ended Jan. 1, with 11.8 million of that increase coming from Disney+. The growth was fueled by the hit new title Encanto, as well as launching Disney+ in South Korea, Taiwan, and Hong Kong.
Management expects new titles and market launches to continue acting as a tailwind and said that subscriber growth in the second half of the year should be higher than the first. In the longer term, CEO Bob Chapek reiterated his confidence that Disney+ will reach between 230 million and 260 million subscribers by 2024.
Since the pandemic, Disney has been plagued with production disruptions, reducing the amount of content it can create. That headwind is fading, and it estimates it will spend roughly $22 billion on content for Disney+ and Hulu in fiscal 2022.
Underwhelming growth from Netflix
Meanwhile, Netflix added 8.3 million subscribers in its most recent quarter ended Dec. 31. That was a little shy of the 8.5 million it estimated to add in the period. Already, that trailed Disney's growth by over 3 million. To make matters worse, Netflix told investors it expected to add only 2.5 million subs in the next quarter.
On average, Netflix has added 8.4 million subs in its first quarter, so the forecast was significantly lower than expected. And this is in stark contrast to Disney, which expects results to get better as the year progresses.
Two factors could be playing a role in the slower growth at Netflix: It is increasing prices for folks in the U.S. and Canada, and competition is catching up. Netflix had a clear runway attracting streaming content customers for nearly a decade. Now, consumers have many options, including Disney's services, to choose from. What's more, Netflix is one of the most expensive choices out there.
What this could mean for shareholders
The price-to-sales ratio of 5.93 for Netflix and 3.8 for Disney suggests there is room for continued relative outperformance from Disney. Netflix has had an incredible run over the last decade; it's only a matter of time before The House of Mouse catches up.