Why BofA Says Disney+ Numbers Are A Positive For Netflix

Following Walt Disney Co's DIS quarterly results, BofA Securities weighed in the implications of Disney+ performance for Netflix Inc NFLX.

The Netflix Analyst

Nat Schindler reiterated a Buy rating on Netflix with a $426 price target.

The Netflix Thesis

Updates on Disney+, the streaming service launched in the U.S. Nov. 12, have a positive read-through for Netflix, Schindler said in a Wednesday note.

Disney+ engagement trails that of Netflix, which reinforces his view that Disney+ is not a substitute, the analyst said.

Disney said its subscribers were watching six to seven hours per week, while on Roku Inc ROKU alone Netflix subscribers are watching nine to 14 hours per week, he said.

Schindler also pointed to Netflix VP Cindy Holland's comments in May; she said the average subscriber was watching two hours per day, suggesting Netflix viewing per subscriber is double that of Disney+.

With Disney's Bob Iger suggesting Hulu's international rollout is unlikely to start until 2021, the analyst said he sees an incremental positive for Netflix's international growth given Disney's limited ability to offer a bundle overseas for now.

Finally, looking at premiere dates for Disney+ Originals, which are clustered into the fall or in the fourth quarter, Schindler said there is likely to be limited competition for Netflix from a content perspective into the third quarter, rendering only the fourth quarter competitive compared to 2019.

Disney+'s launch in India, scheduled for March 29, and benefits from Hotstar bundling are a negative for Netflix's India ambition, the analyst said.

Among the other negatives are Disney's bundling strategy reducing subscriber churn and Hulu's ad-supported ARPU exceeding its ad-free number, he said.

"We continue to rate Netflix as our top pick among the FANG for '20 stock performance and see incrementally positive signs for Netflix's competitive positioning in '20, particularly overseas in Disney's result."

Netflix Price Action

Netflix shares were down 1.12% at $364.89 at the time of publication Wednesday.

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