Why is Disney's ROE lower than Netflix's in 2019? Should Antonia Crowley be concerned?

Sure, Disney’s net income margins have remained higher over the past few years, but the one key element is the revenue growth. Though Disney’s revenue base is more than 3x that of Netflix, its revenue growth is much lower at about 26% between 2017 and 2019, most of it coming in 2019 due to the acquisition of Fox. In contrast, Netflix’s revenue has increased by an impressive 72% during the 2017-2019 period, driven by rising subscriber count and international expansion. Disney’s margins dropped in 2019 due to higher interest cost and acquisition-related expenses, while Netflix’s margins have continuously increased from 4.8% in 2017 to 9.9% in 2019, with this trend expected to continue.

Netflix is a high growth streaming giant. Despite profits being low, its stock price has continuously registered healthy growth mainly due to the rise in top line and market share. This has kept its P/E much higher than Disney, which is a larger and established company with diverse operations. Netflix’s current P/E is at 105x as against Disney’s 19x based on its current market price and FY2019 EPS. So, what along with revenue is driving the difference in price rise? It’s the revenue mix.