Two of the fastest growing consumer subscriber services over the past year come from two entirely different companies. In one corner we have Walt Disney's (DIS 1.74%) rookie streaming service, Disney+. It wasn't even around a year ago. It launched in November of last year, but it now tops more than 60 million subscribers. In the other corner we have Peloton Interactive (PTON 4.10%), riding high with its premium-priced stationary bikes and treadmills.
The 1.09 million connected fitness subscribers on Peloton's platform are a far cry from folks streaming The Mandalorian on Disney+, but Peloton users are paying a lot more for their service. Peloton's user base has more than doubled, up 113% over the past year.
As an investor you can certainly buy into Peloton's growth story, but you can't buy directly into Disney+. The streaming video service is just a small part of the larger Disney, and the media giant is naturally growing a lot slower than Peloton. Let's take a closer look at both companies to see which one is the better buy right now.
Image source: Getty Images.
It's a small world
Peloton stock isn't cheap. It trades at an enterprise value that is more than 12 times its trailing revenue. Don't bother looking for an earnings multiple since it just turned profitable in its latest quarter. Disney's top-line multiple is just a third of what Peloton is commanding, and it has historically been very profitable with its well-diversified media empire.
The Peloton bullish argument centers largely around its far superior growth, and right now the two companies couldn't be further away from one another. Revenue soared 172% higher for Peloton in its latest quarter, as the pandemic kept people at home. Families with the means to do so snapped up its four-figure bikes and treadmills as a way to stay fit without leaving home. The COVID-19 crisis naturally ate into Disney's theme parks and studio entertainment businesses. Its media networks held up reasonably well, but it wasn't enough to spare Disney from a brutal 42% top-line plunge for its fiscal third quarter.
Peloton's growth will decelerate at this point. Disney's revenue has nowhere to go but up now that movie theaters and its theme parks have mostly restarted operations even with tight capacity restrictions. It's also worth noting that the same three-month period ending in June which resulted in Peloton's first profit as a public company was the same quarter that Disney checked in with a 94% plunge in earnings per share.
A whole new world
Disney will get better. Peloton's breakneck speed isn't sustainable. However, it doesn't mean that Disney will ever organically be growing faster than Peloton anytime soon. Looking ahed to fiscal 2021, analysts see Peloton growing revenue at 91%. Reality will likely be kinder, as Wall Street has underestimated its growth in its brief publicly traded tenure. Peloton's own guidance calls for its connected fitness subscribers to climb 90% in the new fiscal year, and revenue itself has grown faster than that in the past.
In Disney's case, Wall Street sees revenue climbing roughly 10% in the new fiscal year that starts next month, but it's coming off a depressed fiscal 2020. What analysts see Disney generating on the top line in fiscal 2021 is just 4% more than it cranked out two years earlier.
Shares of Disney and Peloton have the right ingredients to beat the market in the year ahead. Disney has an unmatched arsenal of entertainment. It operates the world's leading theme parks that greeted an estimated 156 million visitors last year across all of its branded attractions. It scored all five of last year's highest grossing films at the multiplex. It has an 80% stake in ESPN, the undisputed leader in sports programming. The overnight success of Disney+ makes it less vulnerable to the cord-cutting trend that will eat at its media networks. There are a lot of things to like when it comes to the House of Mouse, but Peloton is the better buy here.
Peloton shares may not seem cheap, but a lot of skeptics said the same thing at the beginning of the year and the stock has nearly tripled in 2020. Peloton is still in the early stages of a consumer shift to in-home fitness, and recently announced moves to introduce new products at lower price points will only expand its market dominance. Peloton is clearly the better growth stock, but it's also the better stock right now. Peloton is a better buy than Disney, even though I own both myself and do so expecting that both will beat the market in the future.
