Netflix vs. Disney? Analysts have a favorite, and give it nearly 30% upside

Published Tue, Apr 4 20238:31 PM EDT

There's plenty of competition in streaming services, but Netflix and Disney are undoubtedly two of the biggest names — and both are facing a number of headwinds. Disney has brought back Bob Iger as CEO and announced a $5.5 billion cost-saving plan , but faces an onging tussle with Florida governor Ron DeSantis , and growing investor demands for value creation. Netflix, meanwhile, is seeking to rein in costs and lift revenue by cracking down on password-sharing and boosting its ad-supported service. Wall Street analysts appear to be bullish on both companies looking ahead, with around 80% of analysts covering Disney having a "buy" rating on the stock, and around 50% giving Netflix a buy rating. However, analysts' average potential upside tells a different story: Disney gets average potential upside of 26%, according to FactSet data, while Netflix's comes in at just 3.8%. The case for Netflix For Bank of America, Netflix is a "world class brand" with a "leading global subscriber base." It named the company as one of its top second-quarter picks Monday. Analyst Jessica Ehrlich expects Netflix to outperform because of its crackdown on password sharing and its "introduction of a value-oriented, ad-supported tier which expands [total addressable market] and monetization," among other factors. Wells Fargo is similarly bullish on the stock , with the investment bank predicting improved earnings for Netflix and a continued rally in its share price as the password crackdown continues. Netflix's outperformance this year — up 18.1% compared with the S & P 500 ′s 7.9% advance — is largely due to early bullishness on what paid account sharing could mean for the stock, analyst Steven Cahall wrote in a note last week. Atlantic Equities analyst Hamilton Faber, meanwhile, is also keeping his "overweight" call on Netflix. His estimates for the company's revenue and earnings per share for 2023 are about 5% ahead of consensus, according to a Mar. 31 note. Disney's diversification Barton Crockett, managing director and senior analyst at Rosenblatt Securities, is a fan of both stocks, but believes Disney's more diversified business lines will stand the company in better stead. "When you step back and look at the steaming market overall, this is a very difficult market. I think that Netflix is clearly a leader. Disney is clearly among the leaders. And I think those two can make it to the other side of profitability, but I think it's going to be a tough fight," he told CNBC's "Street Signs Asia" on Tuesday. "I think that there's a lot of players that want a piece of this business. And so, I like the fact that Disney has something outside of streaming, so you're not purely dependent on that, which is what you see with Netflix right now," he added. Disney's theme parks business, for instance, has been "resilient," according to Crockett, which provides "strong support" and mitigates the company's streaming exposure. Moreover, Disney could have more success in clamping down on password-sharing relative to Netflix, and is ramping up its ability to generate advertising revenue through streaming, Crockett added. "We believe that Disney has more of its subscribers opting for the ad-based tier than Netflix, which gives them an opportunity near-term for a bigger benefit from this," he said. "I think Netflix is certainly going to have a lot of leverage on revenue growth and cost discipline. But I do think that a lot of that is already discounted in a stock that trades near 30 times multiple. Disney is trading closer to 20 times. With the kind of blended businesses and the opportunities for improvement, I think Disney is a little bit better in my favor," he said. Crockett isn't the only one bullish on Disney. Macquarie reiterated its "outperform" rating on the stock in a note last week and highlighted the profitability of its direct-to-consumer channels as a key catalyst for the stock. "Staff layoffs soon to begin, along with rational decisions on content spending and creative ways to make more money on streaming, can help Disney get there," analyst Tim Nollen wrote in the Mar. 29 note. — CNBC's Michael Bloom and Alex Harring contributed to reporting