Better Buy: Disney vs. Netflix

Netflix (NASDAQ: NFLX) dominates the premium video-streaming market. It began the year with 138.26 million paying accounts worldwide, and by the end of this weekend, the dot-com darling expects to be at 148.16 million streaming members. No one is closing in on Netflix, but this doesn't mean that Disney (NYSE: DIS) will be on the outside looking in when it launches its highly anticipated platform later this year.

Both stocks are popular with investors. Netflix is one of the best-performing large caps over the past six years. Disney may be marching in place since peaking four summers ago, but the media giant is setting itself up to bounce out of its rut in the near future. Disney and Netflix are great -- and I personally own both -- but which one should you buy if you could only buy one? Let's go over the reasons why Disney could be the one providing superior returns to Netflix over the next year.

Once upon a stream

Disney+ is going to turn more than just mouse-eared heads when it rolls out. Disney will be tapping its industry-leading franchises -- including Pixar, Marvel, and Lucasfilm -- to create original shows for its upcoming platform. More importantly, Disney will spend the next few years pulling content off of Netflix, making the leader weaker in the process.

Netflix will survive the departure of Disney. It will just allocate the money it was spending on Disney content elsewhere, and with its membership base growing, that sum will continue to expand with every passing year. However, clearly there are risks here. Growth is already slowing in its mature stateside market, and last year Hulu actually had more net additions in the U.S. than Netflix. There are at least two big new rivals on the 2019 horizon, and eventually we will get to the point where folks will have to choose between the options instead of just snapping up the major platforms as a replacement to traditional cable or satellite television.

There is no doubt that Netflix is growing faster than Disney. Revenue rose just 8% at Disney for fiscal 2018, well shy of the 35% surge at Netflix. Analysts see top-line gains slowing for both companies this year. The rub for Netflix is that the market's already pricing the stock at a premium. Disney fetches less than 16 times this fiscal year's projected earnings, a bargain when stacked against Netflix at 88 times this year's profit target. The gap narrows if we turn to trailing revenue multiples, with Netflix at 10.2 and Disney at 3.7, but that only highlights Disney's superior margins.

Disney has plenty of catalysts to perk up its slumbering growth rate. It's making big investments at its theme parks for bar-raising new rides, and Disney+ will give it a great way to cash in on its industry-leading content catalog. The company also pays a dividend, though its yield of 1.6% will admittedly not get income investors very excited.

It's been exactly two months since I last pitted Disney against Netflix, and I chose Netflix then. It was the right call, as Disney shares have been flat, while Netflix stock is up nearly 10%. I think both stocks should beat the market at this point, but for now I'm siding with Disney as the better of the two investments. It felt right to get greedy earlier this year, but taking a more cautious approach and going with the lower-risk player makes sense now.

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Rick Munarriz 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.