Could Disney Buy Netflix? – MickeyBlog.com

An old Chinese proverb suggests, “May you live in interesting times.” Amusingly, a frequent British traveler to China took this philosophy as an implied course.

The thought here is that such turbulent years weary the soul. Suffice to say that we are cursed to live in interesting times.

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As part of these times, the financial marketplace has entered a state of semi-permanent upheaval, with The Walt Disney Company bearing the brunt.

Disney had positioned itself brilliantly with a long-tail purchase plan. Then CEO Robert Iger led the acquisitions of Marvel, Pixar, Lucasfilm, and Fox.

Iger Biden

Photo: CNBC

If not for the pandemic, Disney would have spent the past two years taking a victory lap thanks to its well-considered intellectual property (IP) consolidation.

Instead, chaos has ensued. However, George RR Martin has correctly pointed out that chaos is a ladder.

George Martin

Photo: rollingstone.com

Now, Disney finds itself contemplating previously unlikely business opportunities.

Could Disney buy Netflix? Or Roblox? Or Electronic Arts? These options are definitely on the table, but first, something else would probably need to happen.

Netflix

Photo: Netflix

Let’s talk about the possibilities here.

What Has Happened?

For the past two years, Wall Street and Silicon Valley alike threw heapin’ helpin’ of cash at various streaming services.

Wall Street

Image: The Wall Street Journal

Subscriber numbers drove corporate valuations, whether the business models appeared profitable or not.

Disney, a company that turns 100 next year, even pivoted to a streaming service focus. It did so because that’s where the money was.

Photo: skillastics.com

The essential word there is ‘what.’ Now that the pandemic appears over, the average consumer is relying on streaming less because they can live their lives again.

With people able to go outside and visit theme parks and watch concerts and the like, streaming entertainment is no longer the default favorite for consumers.

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Photo: simplemost.com

The popularity of streaming is not in question and will remain for the rest of our lives. However, it’s no longer the apex of entertainment.

For this reason, Netflix stock recently wobbled a bit and then collapsed. In October of 2021, NFLX stock cost $690 to buy.

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Photo: USAToday

On Apr 20th, Netflix announced that it had lost streaming subscribers for the first time in a decade. Overnight, its stock dropped to $226.19.

That wasn’t a one-off decline, either. NFLX has continued to struggle and currently sits in the $190 range as I type this.

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Photo: measureupgroup.com

Netflix’s market cap has fallen from $267 billion to $84.6 billion. And this happened nearly.

Here’s an article from November 2021 with the following headline: Netflix is ​​worth more than Disney. How the mouse can bounce back…

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That article is almost exactly six months old. Netflix has lost 68 percent of its market share since around Thanksgiving. YIKES!

Disney and Netflix

That brings us to sunny point number two. Disney’s market cap in that article is $288 billion.

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Photo: USAToday

As I type this, Disney has plummeted to $193 billion. And here’s the scary part. We know that Disney spent $71 billion on the Fox assets.

The entire stock market has taken a shave. Still, it’s a fair argument that Disney’s non-Fox assets have dropped in value to roughly $150 billion.

Wall Street

Photo:NYpost.com

So, what’s a company to do when its core businesses lack value? On Wall Street, the answer is often to expand again. So, you see where I’m going with this.

Six months ago, the thought seemed unimaginable. However, Disney could feasibly make an offer to buy Netflix, and it may make financial sense to do so.

Source: comicbook.com

During Netflix’s “disastrous” quarter, the company reported revenue of $7.87 billion and net income of $1.6 billion.

You won’t often notice a company’s stock drop when it’s not $1.6 billion in a quarter. That total extrapolates to $6.4 billion for a year.

Netflix stock

Photo: binged.com

My calculations are a bit misleading, though. For the 12 months from March 2021 to March 2022, Netflix’s net income was almost exactly $5 billion.

That’s a reasonable valuation of the company’s expected annual earnings. In short, it’s financially sound and just got leaner.

accountant

Photo:nbjobs.ca

From Disney’s perspective, it already spent more than $70 billion to swallow Fox’s most valuable IP.

Netflix is ​​the frontrunner Disney has spent the past three years chasing in the streaming industry.

A combination of Disney and Netflix would instantly dominate streaming media.

Netflix and Disney Era Comes to an End

Also, as a Disney fan, I love the thought that I’d get Stranger Things at the theme parks!

Still, Disney does have something holding it back from sniffing around Netflix. And that something is Hulu+.

hulu

Photo: THIERRY CHESNOT/GETTY IMAGES

What investors want

When Disney performs its quarterly earnings reports, it usually announces updated streaming subscriber numbers.

Disney+ and ESPN+ have done exceedingly well in this regard. They’ve both grown exponentially over the past 12 months.

ESPN

Photo: ESPN+

Conversely, Hulu+ has only grown 9.6 percent or four million subscribers in a calendar year.

During the most recent quarter, Hulu+ only expanded by 300,000 subscribers. So, it has stagnated for a year. And that’s not even the worst part.

Photo: Hulu

As expected, Comcast chose to end its Hulu+ agreement starting in the fall of 2022.

At that point, NBCUniversal programming will air the next day on Peacock, not Hulu+.

Comcast

Photo: COMCAST

NBC doesn’t have many hits of note, but this change will reduce the value of Hulu+, which has already seemingly reached its plateau.

Disney’s problem here is simple. New competitors have entered the streaming media marketplace.

Discovery’s merger with HBO Max has led to a new entity that is doing well.

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Photo:mediaplaynews.xom

Apple TV+ has created beloved programs like Ted Lasso and Mythic Quest. And Peacock has aired live sports events like The Olympics and the Super Bowl.

Competition hasn’t limited the growth of ESPN+ or Disney+, but it’s definitely caused Hulu+ to lose market share.

hulu

Photo: THIERRY CHESNOT/GETTY IMAGES

Also, at a set point in 2024, Disney must pay Comcast a previously agreed amount for the value of Hulu+.

Most analysts project this number to approach $10 billion. If Disney sells Hulu, someone else foots the bill there.

Verizon Disney+ Hulu bundle

Image Credit: Disney

Then, the company could direct those resources toward a Netflix acquisition. Do I believe that will happen? A lot depends on what happens next.

Netflix vs Others

Even though Netflix’s market cap has collapsed, it’s still worth vastly more than Disney possesses in cash on hand.

Netflix

So, any agreement would require Disney to offer expensive stock options to complete the deal. These things absolutely happen in such transactions.

When Steve Jobs died, he was Disney’s largest stockholder due to the Pixar acquisition.

Image Credit: AP Photo/Paul Sakuma

Still, we’re talking about something akin to $100 billion or more in Disney stock to acquire Netflix. Is the company comfortable doing something like that now?

I’m inclined to think no unless Netflix stock continues its free fall. If it drops to the $60 billion range, that’s when Disney could more feasibly consider it.

Roblox

Photo: Gamespur.com

Conversely, Disney may contemplate a smaller acquisition for now. Roblox is the company most often linked with Disney.

While that’s a conversation for a different day, Roblox’s net income for fiscal 2021 was “just” $1.9 billion. So, it wouldn’t move the needle much now.

Source: Pixar.fandom.com

Instead, Disney would be making another bet akin to Marvel or Pixar that it could maximize Roblox’s gaming IP.

To be fair, Roblox is already doing a terrific job there. For example, its 2021 net income reflects gains of 108 percent year over year!

Roblox

Photo: nbcnews.com

However, those numbers are likely a bit pandemic-inflated. As a result, its future value may not prove as lucrative, although Disney’s marketing machine could change that.

Also, if you don’t know what Roblox is, you don’t have a child under the age of 20.

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Anyway, Disney wouldn’t consider Roblox for streaming purposes. Instead, it’d focus more on the impending metaverse.

Final Thoughts

That brings us to the final possibility here. Electronic Arts represents the pinnacle of video gaming as an industry. And it’s on the market, too.

Electronic Arts

Photo: Electronic Arts

Reports continually link Disney to this company as well, although the Mouse is not the likely favorite here.

Do gaming companies make more sense than Netflix? That’s the question Disney must decide as it plots its next move.

Should Disney commit to dominating the streaming industry, or should CEO Bob Chapek look down the road and try to corner the market on the presumed next big thing?

I favor the latter despite all the buzz about Disney snagging Netflix. I say this because Disney already made its streaming move when it purchased Fox.

Chapek

Source: CNBC.com

As long as the status quo holds, Disney will continue to make inroads in streaming service market share thanks to ESPN+ and Disney+. It doesn’t need anything else.

So, I question the logic of spending additional money on more of the same. Instead, IP-based gaming companies like EA and Roblox make more sense to me.

Disney and Netflix Come to an End

Still, I cannot deny the power of a joint Disney/Netflix corporation. It just feels several years too late to me.

Yes, Disney could buy Netflix, but I don’t think it should.

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Feature Photo: www.independent.co.uk/arts

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