Reuters reports the S&P 500 communication services index has increased 20% so far in 2019, beating the S&P 500’s 17% gain and all but two of 11 sectors - technology and real estate. That strong performance is in large part thanks to a recovery by Facebook Inc, as investors bet that the world’s largest social network will keep growing, even as it faces regulatory hurdles.
June-quarter results from Disney, CBS Corp and Viacom Inc will keep investors fixated on a rising wave of competition in video streaming against market leader Netflix Inc. All those companies fall within the communication services sector.
Netflix’s stock has sunk 14% since it reported on July 17 that it unexpectedly lost U.S. subscribers in the second quarter, rattling investors already worried about the upcoming launch of Disney’s streaming service.
Disney’s family-friendly Disney+, set to launch on Nov. 12 with a slate of new and classic TV shows and movies, is viewed as the most dangerous threat to Netflix. Disney’s shares hit a record high on Monday and have surged 28% this year.
The recent increase in Disney’s shares and decline in Netflix’s shows that investors expect Disney to significantly dent Netflix’s leadership in streaming, said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
Disney’s stock is trading at 22 times expected earnings, its highest forward earnings valuation since 2004, according to Refinitiv data. Netflix’s forward earnings valuation has dipped to 66 from 82 in early July, before its disappointing quarterly report.
Smaller players CBS and sister company Viacom have also built advertising-supported and subscription video services to compete with Netflix, and they are providing original content to other distributors.
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