FuboTV (NYSE: FUBO) has been in the spotlight after its shares skyrocketed higher as much as 38% in a single week. But the streaming company continues to lose money, with analyst consensus estimates calling for further losses in 2025.
Here’s why Netflix (NASDAQ: NFLX) and Walt Disney (NYSE: DIS) stand out as the best buys in the streaming industry.
Netflix is up big for good reasons
Netflix is now worth nearly double Disney — but it wasn’t always this way.
Netflix first surpassed Disney in market cap in 2018. However, investor optimism after the launch of Disney+ helped Disney retake the lead in 2021. Netflix fell below $100 billion in market cap in early 2022 due to a broad-based sell-off in growth stocks and has since tripled from that low.
Netflix’s business model has changed a lot over the years. It began by mailing DVDs, then shifted to licensing and digitizing third-party content, and eventually began producing its own content to build out its intellectual property.
Producing in-house content gives Netflix more control, but it also puts a lot of pressure on it to have hit shows, keep subscribers engaged, and justify price increases. If there are too many flops, customers may leave the platform.
Netflix hasn’t always had a winning formula. But it has learned from mistakes and found a solid balance between producing its own content, licensing content, and integrated ad options so that users can choose a less expensive subscription. Netflix has successfully cracked down on password sharing — which helped boost subscriptions.
Netflix’s operating margin is at an all-time high because it has grown sales faster than operating expenses. Over the last five years, sales are up 92.3% while operating expenses increased 51.2 — which boosted the operating margin to an impressive 23.8%. For context, Netflix’s operating margin was under 10% pre-pandemic.
Netflix is at the top of its game, but the enthusiasm is reflected in the stock price — which is hovering around an all-time high. Netflix recently had a forward price-to-earnings (P/E) ratio of 36.4 — not cheap by any means. However, it is a top-tier growth stock that may be worth its premium price tag if you have the risk tolerance to endure volatility.
Disney is turning the corner, and the stock is cheap
While Netflix has done a masterful job of fine-tuning its business model and disrupting traditional media over the years, Disney has faced the difficult task of tapping into new ideas without completely ruining its legacy business units.
The launch of Disney+ in November 2019 was a major step forward and showed that Disney was willing to take medium-term losses in the pursuit of building something that would last.
Disney has long relied on box office hits and its library of classic films beloved by people around the world. But if subscribers to Disney+ can watch a movie for free a few months after it is released in theaters, then there’s less incentive to go to movie theaters — especially given the quality of home streaming today.
Pressured to make each theatrical release a smashing hit, Disney was criticized for churning out content just to turn a profit and offset losses on Disney+. The same goes for the parks business, which raised prices on tickets, concessions, and merchandizing and has been a good example of the impact of inflation on consumers.
So although Disney+ finally turned a profit a quarter earlier than expected, it still hasn’t found the perfect blueprint for how much to spend on pure-play Disney+ content or theatrical releases — hence why its content slate has been heavily leaning on sequels and successful franchises like Marvel, Star Wars, Toy Story, etc.
There’s also the issue of succession planning. Bob Iger served as Disney CEO from 2005 to 2020, then returned in 2022 to replace Bob Chapek — who he hand-picked to lead the company. Iger has made it clear his stay is temporary and wants to ensure the next CEO is a right fit. But that’s a big question mark for a company whose past is riddled with management shakeups — including a potential hostile takeover that was barely quelled when Michael Eisner and Frank Wells restored order to a struggling Disney in the early 1980s.
Just as the market rewarded Netflix for executing on many key objectives, it has punished Disney for all of the uncertainty. The stock is just 15% off a 10-year low and down 55% from its all-time high.
With a forward P/E ratio of just 18.4, Disney may appeal more to value-oriented investors. This long-tenured component of the Dow Jones Industrial Average also reinstated its semi-annual dividend — although it yields just 1% right now. However, investors can expect Disney to raise the dividend if its business improves.
Disney could benefit from an uptick in consumer spending with interest rates expected to decrease. In the long term, Disney has several ways to monetize its treasure trove of content, such as through movie theaters, streaming, cruises, performance arts, and in-person experiences at the parks. Now could be a great time for investors who believe in Disney’s turnaround to buy the stock while it’s in the bargain bin.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Foelber has positions in Walt Disney and has the following options: short September 2024 $95 calls on Walt Disney. The Motley Fool has positions in and recommends Amazon, Netflix, Walt Disney, and fuboTV. The Motley Fool has a disclosure policy.
Instead of Buying Soaring Streaming Stocks Like FuboTV, Consider Netflix and This Dirt Cheap Dow Jones Dividend Stock was originally published by The Motley Fool
