In this article, I evaluated two streaming stocks, Netflix, Inc. (NFLX) and The Walt Disney Company (DIS), to evaluate the superior stock for investment. After thoroughly evaluating these stocks, I think NFLX might be the right choice for the reasons discussed in this article.
The demand for enhanced streaming services is rising due to the popularity of high-quality videos, driving growth in the global media and entertainment content market. The media and entertainment market was estimated at $27.72 billion this year. The market is expected to expand at a CAGR of 7.8% to reach $40.36 billion by 2028.
Furthermore, the global content streaming market is witnessing an extraordinary surge and is expected to showcase a CAGR of 14% until 2028. This expansion can be credited to the amalgamation of high-speed internet prevalence, smart devices, original content creation, and a pronounced trend towards cord-cutting.
Also, advancements in personalization and AI technologies, the increasing allure of live streaming, initiatives in global content licensing, and the development of interactive content experiences drive growth.
NFLX gained 54.9% over the past year compared to DIS’ 1.8% decline. The stock has gained 69% over the past nine months compared to DIS’ 6.1% gain.
Here are the reasons why I think NFLX might perform better in the near term:
Recent Developments
On January 23, 2024, NFLX and WWE, part of TKO Group Holdings, Inc. (TKO) announced a long-term partnership that would bring WWE’s flagship weekly program, Raw, to the world’s leading entertainment service. This marks a major programming shift as Raw leaves linear television for the first time since its inception 31 years ago.
Conversely, on February 7, 2024, DIS and Epic Games would collaborate on an all-new games and entertainment universe that will further expand the reach of beloved Disney stories and experiences. DIS would also invest $1.5 billion to acquire an equity stake in Epic Games alongside the multiyear project. The transaction is subject to customary closing conditions, including regulatory approvals.
Recent Financial Results
For the fourth quarter that ended December 31, 2023, NFLX’s total revenue rose 6.6% year-over-year to $33.72 billion. Net income increased 20.4% year-over-year to $5.41 billion and EPS increased 21.3% year-over-year to $12.03.
On the contrary, for the first quarter that ended December 30, 2023, DIS’ revenues rose marginally year-over-year to $23.55 billion. Its EPS rose 49% year-over-year to $1.049. Moreover, its net income rose 63% year-over-year to $2.15 billion. However, its operating loss came in at $216 million.
Past And Expected Financial Performance
Over the past three years, NFLX’s revenue increased at a 10.5% CAGR. Analysts expect NFLX’s revenue to increase by 4.1% in the year ending December 2024 and 13.5% in the first quarter ending March 2024. Its EPS is expected to increase 41.9% in the year ending December 2024 and 56.7% over the fiscal first quarter (ending March 2024).
Conversely, DIS’s revenue has increased at a CAGR of 13.5% over the past three years. Its revenue is expected to increase 3.4% in the fiscal year ending September 2024. Its EPS is expected to increase 22.6% in the year ending September 2024.
Valuation
NFLX’s forward non-GAAP PEG multiple of 1.13 is lower than DIS’s 1.44. NFLX’s forward EV/Sales multiple of 6.57x is higher than DIS’s 2.66x.
Profitability
NFLX’s trailing-12-month gross profit margin of 41.54% is higher than DIS’s 34.33%. In addition, NFLX’s trailing-12-month asset turnover ratio of 0.69x is higher than DIS’s 0.44x.
Thus, NFLX is more profitable.
POWR Ratings
NFLX has an overall rating of B, translating to a Buy, in our proprietary POWR Ratings system. Conversely, DIS has an overall rating of C, which equates to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NFLX has a B grade in Quality. Its trailing-12-month EBIT margin of 20.62% is 146.7% higher than the industry average of 8.36%. Its trailing-12-month EBITDA margin of 21.68% is 11% higher than the 19.52% industry average.
On the other hand, DIS has a C grade in Quality. Its trailing-12-month EBIT margin of 11.57% is 38.4% higher than the industry average of 8.36%. However, its trailing-12-month EBITDA margin of 17.54% is 10.2% lower than the 19.52% industry average.
Among the 54 stocks in the in the Entertainment - Media Producers industry, NFLX is ranked #17, while DIS is ranked #9.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, and Sentiment. Get all NFLX ratings here. Click here to view DIS ratings.
The Winner
The entertainment industry is seeing steady gains as a result of rising consumer demand for personalized content and technological improvements. Industry players such as NFLX and DIS are well-positioned to benefit from these industry tailwinds.
However, NFLX’s higher profitability and lower valuation makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Media Producers industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
NFLX shares were trading at $563.93 per share on Monday afternoon, up $2.61 (+0.46%). Year-to-date, NFLX has gained 15.83%, versus a 5.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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