Disney, Netflix, and the Market Cap Battle

This is only the second time Netflix has overtaken Disney in market value

May 12, 2020 at 2:39 PM
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It was a week worth forgetting for blue-chip entertainment icon Walt Disney (DIS). For starters, the company's second-quarter earnings and revenue fell short of Wall Street's estimates. Brokerages piled on with a slew of bear notes, the sharpest coming from Bernstein, which lowered its price target to $96 from $100 while the analyst in coverage at Evercore ISI warned the COVID-19 pandemic will stifle cash flow in the June quarter. But before all of that, the nail in the coffin for Disney's rotten week came on Tuesday, May 5, when streaming giant Netflix (NFLX) overtook DIS as the new number one in market cap value in the entertainment industry, $188.83 billion to $187.04 billion.

It shouldn't come as a surprise in this 'new normal.' Even with the advent of its streaming service Disney+, Walt Disney still relies on in-person activities such as theme parks, brick-and-mortar retail stores, cruises, and movie theaters. Operating incomes for Disney's multiple fronts have all taken a hit, with the exception of its media networks (which in its own regard is interesting, given the lack of live sports currently going on for ESPN to line its pockets with.)

What's clear is that Walt Disney operates on the completely the opposite spectrum of Netflix, which is perfectly equipped for stay-at-home orders and social distancing. Google Trends data indicates searches for 'Netflix' tend to spike around the holidays, but they also recently spiked as the COVID-19 outbreak hit its March apex. And while they've cooled some, as society begins to put itself back together, Google searches for the streaming name remain above the pre-COVID-19 levels.

Context is important when looking at market caps, though. For starters, Disney's market cap still remains comfortably second in the communication services sector. Comcast Corporation (CMCSA) -- even after all of the recent wheeling and dealing – is a distant third with a $167.4 billion market cap. And compare Disney's market cap to another beleaguered industry impacted by COVID-19, like the airline/aerospace sector. As of the close on Friday, May 1, the combined market cap value of American Airlines (AAL), Delta Air Lines (DAL), Southwest Airlines (LUV), and United Air Lines (UAL) was $46 billion. It certainly puts Disney’s new silver medal into perspective.

Disney stock, while not as drastic as some airline stocks, has taken a 27% haircut in 2020, and spent the last month trading sideways between $100 and $110. While the shares have created some separation from their March 18 bottom of $79.07, there are still hurdles that need to be cleared. For the past five years, Disney’s market cap has been stuck between the $150-250 billion range. Per the chart below, the $200 billion level has just been breached and could act as resistance going forward. And now, the $150 billion level – which provided routine support in 2018 – is coming into play.

This is only the second time Netflix has overtaken Disney in market value. The first came during the summer of 2018, between May 25 and July 17. Just as it has now, DIS traded between $100 and $110 during that month-and-a-half span, with the former rung acting as short-term support. Make what you will of the market cap news, what's more important is that the $200 market cap level and $100 price level are important areas to watch going forward.

COTW May 8

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, May 10.



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