everyone knows Walt Disney (NYSE:DIS). Its television networks, streaming services, and theme parks are popular among consumers. But the company has dealt with a number of changes in recent years, as CEO Bob Iger seeks to focus on returning to growth and improving profitability.
Markets don't like this uncertainty. As a result, the top media and entertainment business' stock price has fallen 46% over the past three years (as of Jan. 24). S&P500.
Investors may be considering buying Disney in the hopes that things will turn around and they can make huge profits.But it would be better to consider another streaming stock.
Trouble at the mouse house
Disney stock should do well if it makes significant progress in its direct-to-consumer (DTC) division, including its Disney+ streaming service. Launched in late 2019, Disney+ quickly attracted subscribers. As of September 30, 2023, his number of customers worldwide has reached 150 million.
That's great, but there are some reasons to be concerned. First of all, the DTC division is unprofitable, and in the last fiscal quarter (Q4 2023, ended September 30, 2023), he posted an operating loss of $420 million. Management expects to return to profitability in the fourth quarter of fiscal 2024. If that happens, it will likely be through cost-cutting, as Disney plans to cut annual expenses by $7.5 billion overall.
Rather, they hope to achieve profitability by expanding their segments and gaining significant customer gains. By focusing on cost reduction, companies may be under-investing in growth opportunities and may be at a disadvantage to capture long-term streaming trends.
Even if the stock is trading at an attractive price, Expected price/earnings ratio (PER) At just 21.4, investors may want to take a closer look. Netflix (NASDAQ:NFLX).
Netflix is showing strong momentum
While Disney is rebuilding its business, Netflix is going all in. Netflix beat analysts' fourth-quarter expectations, increasing net new subscribers by 13.1 million in the last three months of 2023. On a percentage basis, this number was up 13% year-over-year and was a faster pace than what Disney+ recorded in its most recent fiscal quarter. And Netflix currently has 260 million customers, making it much larger than Disney+.
Not only that, Netflix's unit economics are also excellent. Average revenue per user Q4 pricing in the US and Canada was a whopping $16.64, 122% higher than Disney+ Core (US and Canada) at $7.50.
Netflix's recent growth has been impressive, but it's even more encouraging to see it profitable. After reporting, Operating profit margin This metric was 16.9% last quarter, and management expects this metric to be 24% for the full year. His DTC division at Disney dreams of one day achieving this goal.
Netflix also generates significant free cash flow, with $6.9 billion in 2023 and an estimated $6 billion this year. Executives are using the cash to buy back stock.
As mentioned above, scale is a key factor that benefits Netflix. You can spread the fixed costs of content development and licensing across a large user base. In early 2019, even when Netflix had about the same number of customers as Disney+ now, it was posting double-digit operating margins. I'm not confident that the House of Mouse will be able to make its streaming business profitable.
Netflix's forward P/E multiple of 34.2x is significantly more expensive than Disney's, but quality-minded investors could take this deal any day of the week.
Should you invest $1,000 in Walt Disney right now?
Before buying Walt Disney stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks Investors can buy now…and Walt Disney wasn't one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
stock advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.
See 10 stocks
*Stock Advisor will return as of January 22, 2024
Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
Forget Disney: Buy and Hold This Great Streaming Stock Instead Originally published by The Motley Fool
