Netflix wants to be more like Disney

Dec 7, 2025

Disney+ and Hulu — streaming services owned by Disney — have 196M subscribers. Disney added 12M subscriptions in its last quarter meaning that it is closing in fast on Netflix’s 300M+ subscribers. Their stocks’ earnings multiples do not tell you this story. Disney is trading at a paltry 15 times its earnings compared to 42 for Netflix. You could say investors are willing to pay a premium for Netflix because it is fast growing and relatively asset-light. Disney is not asset-light — it owns parks and hotels, cable TV and broadcast, studios and production, and more. Now, Netflix wants to buy Warner Bros. Discovery’s studio and streaming assets in a $72B deal. If the deal goes through, could Netflix’s stock become more like Disney’s?

Let us start by understanding some underlying drivers of Disney (DIS) and Netflix (NFLX) stocks.

DIS versus NFLX

As we have said before, a company’s stock price is, in theory, the present value of its expected future cash flows. Since we do not know the future, we can use proxies to guess what the future cash flows could look like. One, we would want to know what the cash flow has been like in the recent past. Two, we would want to know how growth been trending so that we can project the future. A big caveat here is that predicting the future from the past can be dangerous — but we can relax this for our stock sentiment analysis.

One, Disney and Netflix had very similar free cash flows in the 12 months ending in September 2025 — $10.1B for Disney, $9B for Netflix. Two, Netflix has reported double-digit revenue growth in each of the last eight quarters. Disney’s revenue growth never exceeded 7% in that period and even declined in its latest quarter. Based on this, you can probably guess that NFLX commands a premium over DIS.

Let us dive a little deeper because Disney is a diversified company with $36.2B out of $94.4B in revenue, and $10B out of $17.6B in operating income, coming from parks and experiences alone. Aggregated metrics do not tell us where its streaming business is headed. The operating income of Disney’s direct-to-consumer business, which includes streaming services, was $1.3B in the latest fiscal year — up from $143M the year before. Although this is a fraction of Netflix’s $12.6B over the same period, Disney’s operating income from its streaming business is expected to keep trending up. Because Disney+ is a newer service that recently flipped to profitability, it is more telling to look at revenues over this period. Disney’s direct-to-consumer revenue was $24.6B compared to Netflix’s $43.4B.

The takeaway is that Disney’s streaming business has grown big fast as indicated by its revenue, but its operating income is far below Netflix’s. It is not difficult to imagine that the contribution of Disney’s streaming business to cash flows is not meaningful enough to lift Disney’s stock price. The market continues look at Disney largely through the lens of parks and experiences — and would probably continue to do so until income from streaming picks up. Although there is no denying that Disney is top player in streaming.

Intellectual property as a growth driver

Disney’s rise in streaming was enabled by its intellectual property (IP) — arguably the strongest in the industry. It has an impressive collection of assets spanning Walt Disney, Marvel, Pixar, Lucasfilm, 20th Century and many others. Now if you are Netflix, how do you compete with Disney’s IP?

One, you could license content from IP owners to offer the content on your streaming service. However, this option is becoming increasingly difficult because IP owners want their content on their own services, with at least some degree of exclusivity.

Two, you could spend money to build content, but it takes a long time to build an IP portfolio comparable to Disney’s. Disney started building its IP a century ago.

Three, you could buy someone else’s IP. Amazon bought MGM in 2022.

After you have squeezed all growth options using one and two, three looks like a logical next step. Naturally, Netflix wants a strong IP portfolio of its own — ideally, one built over a century. It found the opportunity in Warner Bros. Discovery, which also owns HBO Max. If all goes well for Netflix, it will become what Disney already is — a streaming-studio combo. We have seen that the market does not pay a lot for Disney’s combo. By contrast, the market loves Netflix’s pure-ish play in streaming. Netflix’s earnings multiple is higher than that of Apple, Amazon, Google and Meta. That is even considering that the market did not take nicely to Netflix’s interest in acquiring Warner Bros. Discovery, punishing Netflix’s stock with a 19% drop. Would Netflix’s stock continue commanding a premium?

Where is NFLX headed?

Box office performance is difficult to predict, as famously captured by William Goldman’s words — nobody knows anything. As a result, you would expect Netflix’s acquisition target, Warner Bros. Discovery, to have highly variable cash flows — it is less diversified than Disney, and is more dependent on box office revenue. In the last four quarters, Warner Bros. Discovery generated cash flows of $2.4B, $0.3B, $0.7B and $0.7B, respectively. If Netflix were to buy this highly variable cash flow business for $72B with $59B in debt financing, you would expect the market to react viscerally — a 19% drop in stock price looks tame.

What could the market know that we do not?

One, it might be thinking the deal will not go through because regulators will not allow HBO Max — which is part of the deal — to be acquired by Netflix. The market could be discounting the stock for the $5.8B breakup fee that Netflix has to pay if the deal does not go through, and the management bandwidth that would be consumed towards this deal — impacting company performance — until that happens.

Two, the market might be baking in some meaningful probability of the deal going through. The theory goes like this — Netflix is a well-managed, innovative company that would be able to leverage Warner Bros. Discovery’s IP and HBO Max subscriber base to deliver even stronger growth than before, while comfortably servicing debt payments.

Three, the market might be buying Netflix’s claim of $2B to $3B in annual savings from the deal for now, but as details of the debt structure, incremental subscriber growth assumptions, impact on cash flows, etc., emerge, there would be more consequential movements in the stock.

If the deal goes through, Netflix would end up with one of the strongest IPs in the industry. It would likely get a subscriber boost as long as the subscription price is right. Even so, over the medium-term, its stock could struggle due to the weight of the deal. It is likely that Netflix’s earnings multiple would start sliding towards Disney’s. If the deal falls through, the stock would likely go back up but then Netflix would have to keep finding more cost-efficient ways to grow.

One thing is clear — many Netflix shareholders have just become long-term shareholders.