We’re barely a week away from the start of tech earnings season, when Netflix reports its third-quarter numbers. Investors are feeling bullish: Netflix shares have rallied 30% since mid-July, roughly when the company reported it had lost fewer subscribers in the second quarter than it had projected. That supposedly “better than expected” result was a classic example of a company underpromising and overdelivering. Wall Street falls for it every time. Since then, though, a stream of incremental news reports about Netflix’s plans for its ad-supported tier has buttressed investor confidence. Investors just can’t shake their Netflix addiction.
Notably, they don’t have the same warm feelings about Walt Disney Co., which is also introducing an ad-supported tier for its Disney+ streaming service later this year. Unlike Netflix, Disney stock is roughly where it was in mid-July. That means it is once again trading at a meaningful discount to Netflix on a multiple of next year’s expected sales, a return to a longstanding situation after a brief period in June when the two stocks almost converged in valuation, according to Koyfin. That raises a question: Are buyers too optimistic about Netflix or too downbeat about Disney?