ESPN played a pivotal role in boosting Disney’s bottom line in 2024, helping its streaming division achieve profitability a quarter ahead of schedule. In Q3, Disney+, Hulu, and ESPN+ collectively earned $47 million. Notably, ESPN’s contribution was crucial; without it, the streaming segment would have incurred a $19 million loss. This underscores the growing importance of live sports in the streaming landscape, a trend that both Disney (DIS) and its emerging competitor, Netflix (NFLX), are actively capitalizing on.
Table Content:
Disney’s ESPN: A Financial Powerhouse
The Walt Disney Company’s acquisition of a controlling stake in ESPN in 1995 has proven to be a strategic masterstroke. In fiscal year 2024, ending September 28th, ESPN generated a staggering $17.6 billion in revenue, representing nearly 20% of Disney’s total revenue. The surging popularity of live sports broadcasting positions ESPN as a key asset for Disney’s future growth.
Netflix’s Bold Entry into Live Sports
Netflix has dramatically shifted its stance on live sports, transitioning from disinterest to forging significant partnerships in the sports media arena. This strategic pivot is exemplified by two major deals:
WWE Partnership: In January 2024, Netflix secured a monumental 10-year, $5 billion agreement with WWE. This landmark deal will bring WWE’s flagship program, Raw, to Netflix in 2025, marking the streaming giant’s first foray into long-term live sports broadcasting.
NFL Christmas Day Games: Further solidifying its commitment to live sports, Netflix inked a three-year deal with the NFL in May 2024 to broadcast two Christmas Day games. This marked Netflix’s inaugural venture into broadcasting mainstream American team sporting events.
While Bloomberg reported that Netflix paid $150 million for the two NFL games, analysts estimate the potential for substantial returns through advertising revenue, possibly reaching $100 million per game. Data from Netflix indicates that the Chiefs’ victory over the Steelers on Christmas Day was the second most-streamed live sporting event on the platform, trailing only the November Tyson-Paul fight, as reported by Front Office Sports.
Netflix’s Financial Performance: A Year of Outperformance
Netflix has consistently exceeded Wall Street expectations in 2024, with earnings and revenue surpassing forecasts for three consecutive quarters. In Q3, the company reported earnings of $5.40 per share, exceeding the anticipated $5.12, and revenue grew by 15% to $9.83 billion, surpassing both guidance and consensus estimates.
Looking ahead, Netflix projects 15% revenue growth for both Q4 and the full year 2024. The company anticipates revenue between $43 billion and $44 billion in 2025, representing an 11% to 13% increase from its 2024 guidance of $38.9 billion. This impressive performance is largely attributed to increased paid memberships and higher average revenue per membership. Notably, Netflix added 5 million subscribers in Q3, surpassing StreetAccount’s estimate of 4.5 million, as reported by CNBC, reaching a total of 282.7 million memberships. This success is reflected in Netflix’s stock performance, boasting a 90% year-to-date increase, significantly outpacing competitors like Disney (25%) and Warner Bros. Discovery (WBD), which experienced a 7% decline.
Analyst Optimism and Price Target Hikes
KeyBanc analysts, led by Justin Patterson, have raised Netflix’s stock price target to $1,000 from $785, maintaining an overweight rating. This optimistic outlook is based on several factors, including:
- Reduced Competitive Pressure: The streaming landscape is showing signs of stabilization.
- Expansion of Live Streaming: The growing portfolio of live sports and events is attracting new viewers.
- Superior Financial Performance: Netflix exhibits stronger revenue and EPS growth compared to its peers.
- Valuation Floor: The stock price is perceived to have a solid foundation.
KeyBanc also anticipates potential price increases, citing the popularity of content like NFL games and Squid Game 2 as drivers for monetization. The possibility of a partnership with UFC further enhances Netflix’s appeal. Despite UFC’s historical preference for ESPN, KeyBanc suggests that Netflix’s success with the Tyson vs. Paul fight and the initial viewership figures for WWE could position it as a compelling partner.
Future Price Hikes on the Horizon?
KeyBanc analysts believe the likelihood of Netflix implementing price increases is rising due to the expansion of its live events offerings. They highlight that, based on U.S. pricing, Netflix remains significantly more affordable per hour of content compared to cable TV and movie tickets. Netflix last implemented a major price hike in January 2022. While the “Netflix won” narrative prevails in the market, KeyBanc cautions that the company’s high valuation, with a Next Twelve Months Enterprise Value-to-Sales (NTM EV/S) multiple of 9x, could pose risks for investors, as this level has historically represented a ceiling. Netflix’s stock closed at $924.14 on December 26th.
