Invest in This Superior Streaming Stock Instead of Disney

Invest in This Superior Streaming Stock Instead of Disney

There’s really no debate about this: Walt Disney is one of the most dominant media and entertainment companies on the planet. Its history spans almost 100 years, full of fantastic tales and memorable experiences.

The House of Mouse is used to winning over its fans through video entertainment. And with that context in mind, it’s encouraging that the company has launched its own flagship product, Disney+. streaming service in November 2019. As of December 30, 2023, it has 111.3 million subscribers, easily making it one of the most popular choices on the market.

But if you’re looking for a great streaming stock to add to your portfolio, forget Disney. Instead, buy and hold this industry leader.

Where is the growth?

The streaming business that deserves your attention is none other than Netflix (NASDAQ:NFLX). After adding 29.5 million net new customers in 2023, it currently has 260.3 million subscribers. Even with an already massive user base, the company is finding ways to increase its membership.

This is in stark contrast to Disney+. Yes, it deserves recognition for reaching over 111 million customers in less than five years. However, there could be signs that it has peaked.

During the last fiscal quarter (the first quarter of 2024 ended December 30), Disney+ Core (excluding Hotstar) saw its subscriber count decrease by 1% quarter over quarter. Executives cited rising prices as the reason more members chose to cancel their plans.

Pricing power This is where Netflix really shines. Last October, it increased the prices of its Basic plan in the United States by $2 per month. However, that didn’t stop the company from adding 2.8 million net new users in the U.S. and Canada in the fourth quarter, while posting a 3% increase in average revenue per member.

Consumers give investors enormous information here. Netflix is ​​the top choice for streaming, even as its price increases. This is something Disney+ hasn’t been able to compete with until now.

Disney is still losing money

When it comes to profitability, Netflix is ​​once again circling Walt Disney. Disney’s direct-to-consumer (DTC) operations, where Disney+ and the stake in Hulu are reported, posted an operating loss of $138 million in the most recent fiscal quarter. Credit is given for reducing this loss from the nearly $1 billion loss in the first quarter of 2023. Disney is embarking on a broader company-wide plan to reduce approximately $7.5 billion in spending by the end of the current fiscal year.

But we cannot ignore the fact that the DTC segment continues to lose money. “We continue to expect to achieve profitability from our combined streaming businesses in the fourth quarter of the fiscal year. 2024,” management wrote in the first quarter 2024 earnings release. We’ll see if that ends up happening.

But let me tell you how behind Disney’s DTC business is. Netflix brought in nearly $7 billion in Operating income on $33.7 billion in revenue in 2023, which translates to an exceptional margin of 21%. Better yet, this operating margin has continued to grow over time. And this year, executives estimate that figure will reach 24%.

As the first mover in the streaming wars, Netflix has achieved a massive scale that even Disney can’t achieve. Netflix is ​​expected to generate $6 billion in free cash flow in 2024. It has solved the profitability puzzle that plagues other streaming competitors.

Netflix shares are up 178% in the last 18 months, so they’re not as cheap as they once were. Investors can buy the stock at a forward price-to-earnings ratio of 36.9. This represents a premium of approximately 44% for Disney. But it could be worth it for investors who want to own the best company in the streaming industry.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.

Forget Disney: Buy and Keep This Magnificent Streaming Title Instead was originally published by The Motley Fool

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