Better Buy: The Walt Disney Company vs. Netflix Inc.

Markets Motley Fool

Sometimes, there's no wrong answer. Both Netflix (NASDAQ: NFLX) and Walt Disney (NYSE: DIS) are high-quality investments, but for different reasons that fit different roles in your portfolio.

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I own both stocks and intend to stick with them for years to come. Now let's see which one might be the best fit for you and your investing strategy.

By the numbers

Metric

Disney

Netflix

Market Cap

$150.7 billion

$72.6 billion

Trailing Revenues

$55.5 billion

$10.9 billion

Trailing Net Income

$9 billion

$0.4 billion

Annual Revenue Growth

(0.3%)

30%

Annual Earnings Growth

(5%)

142%

What's new with Disney in 2017?

Disney investors are having a tough year so far. As of Nov. 22, Disney shares had gained just 5.5% year to date while the S&P 500 market barometer rose 16% higher.

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The prized ESPN sports network is losing subscribers by the millions. American consumers are embracing non-cable options to meet their sports viewing needs, and some investors expect this outflow of cord-cutters to damage Disney's business model on a fundamental level.

This is not a short-term issue, but Disney is tackling its cable reach problems in intelligent ways. The company is raising its fees to broadcasting affiliates, not just for ESPN but also for the Disney Channel and ABC, to mitigate lower advertising sales and shrinking ESPN subscriber counts. This works well thanks to Disney's unrivaled brand power.

Looking further ahead, Disney will start an ESPN-branded video streaming service next spring, followed by a full-fledged online movie and TV service in early 2019. Again, this gambit would never work for a lesser brand, but Disney just might pull it off. If so, many of ESPN's cord-cutters could find a new home in this Disney-owned streaming service.

How about Netflix?

The streaming video veteran has gotten stronger this year. The company is raising subscription prices around the globe, yet raking in more new subscribers than expected. At the latest count, Netflix sported 109 million total customers, growing its international subscriber count by 44% year over year.

Management gives all credit for this success to a strong and growing portfolio of original content. That's why Netflix should be able to wave goodbye to Disney's streaming content in 2019 without suffering serious damage. And the rising number of high-quality Netflix originals also shields the company from crippling damage when any particular title sputters and sinks.

The international growth opportunity looms large, and operating margins are on the rise domestically and abroad.

Which one's for me?

Disney is the larger and more mature business. It is where you park cash you don't want to worry about for decades. Disney's long-term growth may not be excitingly fast, but there's no stopping it. The House of Mouse will find a way to stay relevant and profitable.

Netflix is the up-and-coming growth story. This company has already nearly abandoned the DVD-based business model where it killed the competition, moving on to the larger vistas of digital streaming services on a global platform. Come back in 10 years, and Netflix may stand shoulder-to-shoulder with Disney as a powerhouse studio. CEO Reed Hastings may also have additional plans beyond this stage.

The Netflix ride will inevitably be bumpier than Disney's. That's the price you pay for the larger growth opportunity. Like I said, both of these stocks have a long-term home in my portfolio. But Netflix is my largest holding, and maybe it should be yours too.

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Anders Bylund owns shares of Netflix and Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.