Netflix, Inc. (NFLX) and The Walt Disney Company (DIS) are dominant players in the streaming space. Evolving from a DVD rental business to a streaming giant, NFLX has transformed its business and diversified its service offerings to capitalize on the home entertainment trend. In comparison, media and entertainment conglomerate DIS’ launch of its streaming service Disney+ represents a strategic pivot for the company.
As the COVID-19 pandemic accelerated the growth of the home-entertainment market, streaming stocks saw spectacular gains last year. However, because more people are now embracing outdoor activities again amid a speedy vaccination drive, there has been a significant decline in the subscription growth rates of streaming companies lately. In short, now that the pandemic has eased somewhat, consumers are choosing to discontinue their video-streaming subscriptions. This could negatively impact NFLX’s and DIS’ businesses. In fact, given the competitive streaming landscape, a decline in customer loyalty and content production delays could cloud their near-term prospects.
Over the past month, NFLX has lost 8.3%, while DIS has declined 3.7%. In terms of past year performance, NFLX has gained 16.8%, while DIS returned 79.6%. Let’s find out if any of these stocks is a good pick now.
NFLX plans to release big hits, such as The Witcher, La Casa de Papel, and You, as well as original films that include large-scale features like Red Notice and Don’t Look Up, to reinvigorate its paid subscription growth in the second half of this year. However, the company’s delayed content production could make its membership growth prospects uncertain.
Last month, DIS launched the Ultimate Princess Celebration, with the debut of Grammy Award-winning recording artist Brandy. It also released the Tales of Courage and Kindness, 14 original stories featuring new illustrations of Disney Princesses. These new launches are expected to boost the company’s pipeline of content and drive its viewership growth.
Recent Financial Results
NFLX’s revenue increased 24.2% year-over-year to $7.16 billion in the first quarter, ended March 31. Its operating income grew 104.6% from its year-ago value to $1.96 billion. However, NFLX’s total gross debt balance came in at $15.7 billion for this period. Its paid membership was 208 million in the first quarter, up 14% year over year, but below its 210 million guidance forecast of paid memberships.
In the fiscal first quarter, ended January 2, DIS’ revenues have declined 22% year-over-year to $16.25 billion. Its net income from continuing operations declined 99% from the year-ago value to $29 million, while its segment operating income declined 67% year-over-year to $1.33 billion over this period. The company’s EPS decreased 98% from its year-ago value to $0.02. Furthermore, DIS’ average monthly revenue per paid subscriber decreased 28% from the prior-year quarter to $4.03.
Past and Expected Financial Performance
NFLX’s revenue and EBITDA have increased at CAGRs of 27.4% and 72.9%, respectively, over the past three years. In comparison, DIS’ revenue has increased at a 2.9% CAGR over the past three years. However, its EBITDA has declined at an annualized 27.3% rate over this period.
NFLX’s revenue is expected to rise 18.9% in the current year, and 15.2% next year. The consensus EPS estimates indicate a 98.1% increase in the current quarter, and 73.4% in fiscal 2021.
In comparison, Street expects DIS’ revenue to increase 5.3% in fiscal 2021 and 25.9% in fiscal 2022. But the company’s EPS is estimated to decline 53.3% in the current quarter and 1% in 2021.
DIS’ trailing-12-month revenue is more than twice NFLX’s. But NFLX is more profitable with a 41.1% gross profit margin versus NFLX’s 29.9%.
However, DIS’ cash from operations of $6.06 billion compares favorably with NFLX’s $2.94 billion.
In terms of trailing-12-month price/sales, NFLX is currently trading at 8.31x, 53.6% higher than DIS, which is currently trading at 5.41x. Also, its 8.81x trailing-12-month EV/sales is 37.4% higher than DIS’ 6.41x.
However, DIS is more expensive in terms of trailing-12-month EV/EBITDA (59.83x vs 40.71x) and trailing-12-month price-to-book (43.35x vs 2.55x).
NFLX has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system, while DIS has an overall D rating, which represents a Sell. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In terms of Value Grade, DIS has a D, which is consistent with its higher-than-industry EV/EBIT ratio. In comparison, NFLX has a C, which justifies its higher-than-industry P/E ratio.
DIS has a D Quality Grade, given its lower-than-industry gross profit margin. In comparison, NFLX has a B grade for Quality, consistent with its higher-than-industry EBIT margin.
Also, both NFLX and DIS have C grades for Stability, reflecting that they are more volatile than their peers.
In addition to the grades we’ve highlighted, our POWR Ratings system has also rated both DIS and NFLX for Growth, Momentum and Sentiment. Get all DIS ratings here. Also, Click here to see the additional POWR Ratings for NFLX.
Both NFLX and DIS can be considered good long-term investments due to their growing dominance in the sprawling streaming space and diverse content offerings. However, a slowdown in the pandemic-fueled subscriber growth rate and their higher valuations in an intensely competitive market do not make them good investment bets currently .
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment – Sports & Theme Parks industry. Also, you can access all the top-rated stocks in the Internet industry here.
DIS shares were trading at $183.76 per share on Friday morning, up $1.97 (+1.08%). Year-to-date, DIS has gained 1.42%, versus a 13.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.Netflix vs. Disney: Which Streaming Stock is a Better Buy in 2021? appeared first on StockNews.com