Amidst a rough month for overall markets, Netflix and Disney disappointed Wall Street analysts with underwhelming results. But if we had to choose one to invest in today, which would we go for?
Let's first dig into what differentiates the two companies.
Streaming Segment
Tech stocks overall have suffered greatly during the first several months of 2022 However, the streaming segment seems as though it’s being particularly punished.
Both Netflix and Disney have performed worse than the S&P 500 over the past month. While the market index has accumulated a loss of 12%, NFLX and DIS have seen devaluations of 50% and 21%, respectively.
Although both companies have performed quite poorly, the 30 percentage point difference between their drops is of course quite striking. Much of that gap can be attributed to Netflix’s dismal Q1 earnings call - after reporting its first subscribership dip in a decade, shares of the company tanked 35%.
Meanwhile, Disney reported a net addition to its subscribership (although it did also report a slowing rate of increase in its subscribers).
Other Sources of Income
Both companies have stakes in industries besides streaming, though Netflix’s share of non-streaming business is much, much smaller than Disney’s. Nevertheless, Netflixismoving to monetize its content in new ways (such as gaming and character licensing).
Disney, though, already has several other significant revenue sources in its portfolio. The company only started streaming in 2019, and it has worked to grow its other core businesses - including parks, merchandise sales, and theatrical releases - alongside its streaming business.
Physical parks guarantee Disney a source of revenue that’s steeped in the “real,” physical economy. Disney is also able to leverage its successful series and movies to attract more parkgoers and sell more merchandise.
Our Take: Disney Dominates
In our eyes, Disney has the clear upper hand in several respects. It has delivered profitable results and respectable growth year after year for decades. And, for such a large company, it continues to show remarkable nimbleness - it has worked to take advantage of and become a market leader in new segments, such as streaming.
However, it is worth noting that some of this strength may already be baked into Disney’s stock price: DIS is trading at 25x P/E, while Netflix trades at only 16x. Even given this P/E discrepancy, though, we still believe that Disney is the better pick today.
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