The streaming landscape has witnessed remarkable growth over the past decade, attracting a slew of new contenders, including traditional media giants like Walt Disney (NYSE:DIS), which transitioned into streaming to leverage its substantial growth potential. Disney, a diversified entertainment conglomerate, boasts a portfolio that encompasses not only streaming but also theme parks, linear TV, and movie production assets. Despite its relatively recent foray into streaming with the launch of Disney+ in 2019, just prior to the onset of the COVID-19 pandemic, the platform has rapidly gained traction.

Disney’s Entrance into the Streaming Arena 

With outdoor entertainment options largely curtailed during the pandemic, Disney+ experienced a swift surge in subscribers. In just 16 months since its inception, Disney+ amassed over 100 million users, a milestone that took streaming pioneer Netflix (NASDAQ:NFLX) a decade to achieve. A Nielsen report cited in Netflix’s Q2 shareholder letter disclosed that streaming dominated 37.7% of U.S. TV screen time in June 2023, marking a substantial increase from 26% in May 2021. The data further indicated that Netflix commanded 8.2% of total TV screen time, compared to Disney+’s 2%.

Comparing Streaming Metrics

 Here’s a comprehensive comparison of key streaming metrics between Netflix and Disney:

Subscriber Base

 In the June quarter, Netflix expanded its streaming subscriber base by 5.9 million, reaching a total of 238.39 million subscribers. During the same period, Disney+’s subscriber count declined to 146.1 million. Of these, 46 million were U.S. subscribers, and 59.7 million were international subscribers. Excluding Disney+ Hotstar, the platform’s subscriber count dipped 24% to 40.4 million.

Average Monthly Revenues 

In the June quarter, Netflix reported an average revenue per user (ARPU) of $16 in the United States, Canada, and New Zealand markets, remaining consistent with the previous year’s corresponding quarter. Conversely, Disney reported an ARPU of $7.31 in U.S. and Canadian markets during the same period. Disney’s ARPU in international markets also trailed behind Netflix’s figures.

Engagement and Strategy 

Netflix leads in engagement, with a Nielsen report indicating that it had the top original streaming series in the U.S. for most of the first half of the year. Interestingly, both Netflix and Disney have shifted their focus from sheer subscriber growth to profitability. Both companies introduced ad-supported tiers in 2022 and have tackled the issue of password sharing, a significant concern in the streaming industry.

Profitability Divide

In terms of profitability, Netflix stands out. Netflix projected a $10 billion industry-wide operating loss for 2022 while expecting its own operating income to range between $5 billion and $6 billion. Ultimately, the company reported a $5.6 billion operating income for the year. Conversely, Disney’s streaming endeavors faced losses, with an operating loss of over $2.2 billion during the first nine months of fiscal year 2023.

Price Performance

Both Disney and Netflix are trading below their all-time highs, with Disney showing underperformance throughout 2023. However, considering the current scenario, Disney appears to be a stronger streaming stock investment, particularly due to CEO Bob Iger’s strategic initiatives. These include a $5.5 billion cost-saving drive and a notable reduction in streaming losses. Disney’s increased subscription prices and ongoing business transformations further contribute to its potential.

Additionally, Disney’s valuation multiples seem reasonable, with the next-12 months (NTM) price-to-earnings multiple of approximately 19x, compared to Netflix’s 31x. Analysts project a nearly 42% improvement in Disney’s bottom line for the next fiscal year, compared to a 32% rise in Netflix’s earnings. Wall Street analysts also favor Disney, with 65% giving it a Strong Buy rating, while 58% of analysts hold the same view for Netflix. Moreover, Disney’s mean target price implies an upside of over 31%, making it a more appealing option for investors looking at risk-reward profiles in comparison to Netflix’s current valuation.

 Conclusion

Although Netflix currently outperforms Disney in terms of streaming performance, Disney’s trajectory toward incremental improvement, the ongoing business transformation, and its reasonable valuation multiples render it a more compelling choice for investors, especially with the potential to achieve a breakeven result in the next fiscal year.

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