Better Buy: Netflix vs. Disney

TradingKey - In the world of streaming, there are two big players right now that actually have scalable businesses. First, there’s the OG that is, of course, Netflix Inc (NASDAQ: NFLX). The company dominates streaming with must-watch originals and cutting-edge innovation. 

Meanwhile, The Walt Disney Company (NYSE: DIS) enchants audiences with its blockbuster franchises, magical theme parks (such as Disneyland and Disney World), and timeless icons like Mickey Mouse. But when it comes to actual investing, which entertainment giant offers the better opportunity for investors? 

In this showdown, we’ll break down the numbers – from subscriber growth and revenue streams to profitability and content strategies – to help you decide which powerhouse deserves a spot in your portfolio.

1. Subscriber base

Netflix boasts over 600 million global viewers, with more than 238 million paying subscribers. Its ad-supported tier is gaining traction, accounting for 50% of new sign-ups in markets where it’s available. Regional expansions in Asia-Pacific and Latin America signal further untapped growth potential​.

On the other hand, Disney’s subscriber count reached 174 million across Disney+ Core and Hulu by the end of 2024. While this is a respectable number, Disney has struggled with churn in some markets due to price increases. However, the upcoming ESPN direct-to-consumer (DTC) service could bolster its subscriber base​.

Winner: Netflix edges out Disney given its larger, more globally dispersed subscriber base and higher engagement metrics.

2. Revenue growth

Netflix’s revenue climbed 15.0% year-on-year in Q3 2024 to US$9.82 billion, fuelled by pricing adjustments, ad revenue growth, and a steady increase in Average Revenue per Member (ARM). Its advertising revenue doubled year-on-year, albeit from a smaller base​.

Meanwhile, Disney’s revenue grew 6.3% year-on-year in Q4 2024 to US$22.57 billion, driven by its Parks, Experiences, and Consumer Products segment. Streaming revenue improved as 60% of new US subscribers chose ad-supported plans but overall growth was slower than Netflix’s rate of expansion​.

Winner: Netflix comes out ahead again with faster revenue growth, reflecting its unique ability to squeeze out more growth from new revenue streams.

3. Profitability metrics

First up, Netflix posted an earnings per share (EPS) of US$5.40 in Q3 2024, beating estimates by 27 cents. Its operating margin expanded by 6 percentage points in 2024 and the company is expected to continue improving this through strategic pricing and ad-driven growth​.

For the “House of Mouse”, Disney’s Q4 2024 EPS of US$1.14 also beat expectations, but growth was modest at just 3 cents above estimates. Operating margins are under pressure right now due to high capital expenditures in Parks and Experiences as well as in its streaming investments.

Winner: Netflix, with higher margins and a leaner cost structure.

4. Content strategy

For Netflix, its slate of original programming remains strong. Seven of the top 10 most-streamed original series in 2023 belonged to Netflix. It dominates in original series while it’s also expanding into live programming like the Tyson-Paul fight and NFL games. However, Netflix’s movie offerings lag behind those of Disney.

Disney: Disney’s strength lies in its blockbuster franchises (Deadpool & Wolverine, Avatar: Fire and Ash) and its ability to monetise its sought-after intellectual property (IP) across parks, merchandise, and streaming. This diversified approach ensures long-term engagement across multiple platforms​.

Winner: Disney edges this one but it’s close. While Netflix excels in original content production and global reach, Disney’s ability to leverage iconic franchises across multiple platforms ensures a sustainable engagement model, with further room to grow given its lower subscriber base.

5. Debt and cash flow

Looking at the hard numbers on debt and cash flow, Netflix has US$7.4 billion in cash and generates nearly US$6 billion in free cash flow annually. This gives it ample room to reinvest in content, gaming, and ads while maintaining a manageable net debt level​.

For Disney, it’s a slightly different case as the company has heavy investments in parks and cruise expansions that weigh on its cash flow. Capital expenditures for FY2025 are forecasted to rise to US$7 billion, limiting its short-term financial flexibility​.

Winner: Netflix, with stronger free cash flow and a lighter debt burden.

6. Diversification

Netflix remains a pure-play streaming company, venturing into adjacent areas like gaming and live sports. While these initiatives show promise, they remain relatively small contributors​.

Disney’s revenue streams are highly diversified. They span parks, cruises, merchandise, and media. This diversity in revenue insulates the company from downturns in any one segment, making it a more stable investment in both good times and bad​.

Winner: Disney, with its more well-rounded portfolio.

The Verdict

For investors seeking growth and a pure-play bet on streaming, Netflix delivers higher revenue growth, better profitability, and a more attractive valuation. Its focus on innovation, coupled with expanding revenue streams in ads and live programming, make it a compelling choice.

However, for those prioritising stability and diversification, Disney is harder to beat. With a rich portfolio of revenue streams and a strong pipeline of blockbuster content, Disney will likely be a less volatile long-term investment.

Overall, though, Netflix edges out Disney as the better buy for growth-focused investors. As always, your choice should align with your investment goals and risk tolerance so ensure you fully understand both the pros and cons of every company you buy