The global streaming industry is rapidly expanding, with many players vying for a foothold. Within this competitive space, two giants stand out: Netflix (NFLX) and Walt Disney (DIS).
Disney's legacy in the entertainment industry spans nearly a century. From timeless animated classics to blockbuster franchises such as Marvel and Star Wars, Disney's position is unique. Meanwhile, Netflix's massive library of original content has quickly earned it a loyal global customer base. Compared to the S&P 500 Index’s ($SPX) YTD gain of 7.1%, Netflix stock has gained 25%, while Disney stock has gained 24%.
Both companies have made a significant mark in the streaming industry. However, let’s find out which stock is better poised for growth and resilience in the long run.
The Case For Disney Stock
Disney's (DIS) portfolio of beloved brands and franchises includes Pixar, Marvel, and Star Wars, among others. Furthermore, its portfolio includes Disney Experiences, which encompasses theme parks, resorts, cruises, and a diverse range of consumer products - giving it a competitive advantage in content creation and merchandising. Its portfolio has generated consistent and substantial revenue through a variety of channels over the last decades, although activist investors are right now hotly debating the makeup of the company's board due to its longer-term share price underperformance.
Notably, in the first quarter of fiscal 2024, diluted earnings per share (EPS) increased by 49% year-on-year to $1.04 per share, while revenue remained consistent with the prior-year period at $23.5 billion.
Disney+ marked the company's entry into the rapidly expanding streaming space. In Q1, Disney+ Core subscriptions fell by 1.3 million sequentially. However, the company expects a net addition of 5.5 million to 6 million subscribers in the second quarter.
For its combined streaming businesses, Disney expects to be profitable by the fourth quarter of fiscal 2024, as it works to reduce costs. The company expects earnings to grow by 20% to $4.60 in fiscal 2024, which is lower than the consensus estimate of $4.65. Analysts predict a 3.3% increase in revenue this fiscal year.
What Do Analysts Say About Disney Stock?
Overall, Wall Street rates DIS stock as a “moderate buy.” Out of the 24 analysts covering the stock, 14 rate it a “strong buy,” with four “moderate buy” ratings, five “hold” ratings, and one “strong sell” rating. Disney stock is trading nearly flat with its average target price of $112.81, but its high target price of $136 implies the stock could surge by 21.3% from current levels.
The Case For Netflix Stock
While Disney has long dominated the entertainment industry, Netflix (NFLX) is a relatively new player by comparison. Netflix, founded in 1997 and once known for its DVD-by-mail service, soon became a key player in the global streaming space.
With a vast library of original content and licensing agreements with major studios, Netflix had 260.28 million paid members worldwide as of the end of 2023.
Despite the company's subscription price increase and crackdown on password sharing, revenue rose 12.5% year-on-year to $8.8 billion. Earnings increased from $0.12 per share in the year-ago period to $2.11 per share in the fourth quarter.
Netflix's focus on emerging markets, where streaming adoption is increasing, could lead to further growth in the coming years. The company also intends to expand its advertising business to increase long-term revenue and profits.
Management believes the entertainment space is a $600 billion-plus opportunity "across pay TV, film, games, and branded advertising," with Netflix accounting for only 5%. This means Netflix has a large scope to grow. Furthermore, management emphasized that a Nielsen survey showed it had the most watched "original TV series for 48 out of 52 weeks of 2023."
Management predicts double-digit revenue growth in 2024. Analysts forecast that Netflix's revenue and earnings will rise by 14% and 41.9%, respectively.
What is Wall Street’s View on Netflix Stock?
Out of the 40 analysts covering Netflix stock, 22 have a “strong buy” recommendation, one suggests a “moderate buy,” 15 recommend a “hold," and two analysts say the stock is a “strong sell.”
Netflix stock has surpassed analysts' average price target of $555.37. The high target price of $725, however, implies a potential upside of about 19.1% in the next 12 months.
Which Streaming Stock is a Better Buy?
Within the entertainment industry, both Netflix and Disney are good long-term investments. While Netflix has experienced rapid revenue growth as a result of subscriber expansion, Disney has demonstrated resilience in the face of competition due to its diverse revenue streams.
Wall Street rates both Netflix and Disney stock as a "moderate buy." In terms of valuation, Netflix trades at 35 times forward 2025 earnings, compared to Disney's forward price-to-earnings multiple of 24x. While Disney's stock is cheaper, analysts also expect Netflix to grow faster over the next two years.
Overall, I believe Disney's diverse revenue streams and iconic brands provide both stability and growth potential, making it the better stock to buy right now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
