Netflix, Inc. vs. Walt Disney Co: Which Media Stock Should You Buy?

netflix - Netflix, Inc. vs. Walt Disney Co: Which Media Stock Should You Buy?

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If you’re looking to invest in media, it’s pretty obvious that newspapers aren’t the way to go. Heck, Warren Buffett himself bought into the segment in 2012 and expressed recently that there wasn’t much upside there.

Instead, the entertainment side of things tends to offer more potential, especially with names like Netflix, Inc. (NASDAQ:NFLX) transforming consumption habits and business models. That said, old-school media king Walt Disney Co (NYSE:DIS) is hardly on the brink of destruction. It boasts the most media revenue and its stock brings with it diversification via theme park sales.

Earlier this year, Barclays predicted that Netflix could become the second-biggest media company behind Disney in the next three to five years, excluding the latter’s sales from studios and theme parks — and it briefly did surpass Disney in market value last week. Barclays believes its subscription growth will outpace the growing costs of its original content.

The Differences Between Netflix and Disney

Which brings us to the main thing to realize about NFLX and DIS: they might be two of the biggest players in the media space, but they are very different stock picks.

To start, shares of Netflix have more than doubled over the last year. The company is slated for 63% earnings growth each year for the next five, including 129% growth this year. That average is twice the annual earnings growth rate for the previous half-decade.

Most of that earnings growth is organic, too. Sales are supposed to expand by around 38% this year, with another 24% expansion on tap after that. Despite the growth, the stock sports a tall trailing P/E of 280 and a forward P/E of 76.

Meanwhile, Disney stock is currently sitting in the red for the last 12 months, starting around $107, moving sideways, and currently sitting at $100. Of course, the more mature company also has a more palatable multiple: a trailing P/E of 15 and a forward P/E of 14.

In terms of growth, Disney is slated for 12% earnings growth each year for the next half-decade, including 24% this year.

Obviously Netflix has more room to expand, but it’s also a younger company. Disney offers a bit more certainty, as its diversified in revenue streams and geography moreso that the up-and-coming streaming player. It also has been paying a dividend since 2011 — one that’s currently good for a yield of 1.7%.

The lesson: Disney is a bit more of your standard stock pick, where you can analyze growth rates and cost and try to get in at a good level. Netflix is a bit more speculative, like Amazon before it turned a profit. If its forward P/E were an indicator of stock direction, it would have crashed back to more “logical” levels a long time ago.

But as Barclays pointed out, Netflix is filled with potential. Disney, on the other hand, has already established dominance. They both could be good additions to your portfolio, but they should serve very different purposes.

As of this writing, Robert Martin did hold a position in any of the aforementioned securities.

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