Media empires Disney (DIS -1.04%) and Comcast (CMCSA -0.31%) have endured an onslaught of bad breaks this year. However, with theme parks mostly closed, new theatrical releases shelved, and sporting events only just beginning to resume this autumn, it may seem amazing that Disney stock is down a mere 17% from its all-time high and Comcast stock has nearly clawed its way back to breakeven.
The reasons why are telling and should help investors decide which is the better buy right now.
The better entertainer should outperform -- at least on paper
Disney has amassed the world's most powerful portfolio of entertainment. Marvel, Star Wars, Pixar, ESPN, the film franchises picked up from Fox, all complemented by Disney's own back-catalog of animated and live-action movies should be more than a match for Comcast's NBCUniversal. Although it also has an enviable portfolio that includes the ongoing Jurassic Park and Fast and the Furious movies, Dreamworks Animation, and plenty of classics.
With so much beloved content at its disposal, Disney seems like the ringer between the two. It has streaming TV subscribers (to Disney+, Hulu, and ESPN+) totaling over 101 million, and with so many households confined to home with extra time on their hands, Disney should be doing just fine. That hasn't exactly been the case. The reason is that nearly 40% of Disney's revenue came from its theme parks, experiences, and product segment, and another 15% came from studio entertainment (box office receipts) before the pandemic. But with Disney parks still operating on a limited basis, Disneyland in California still closed as of this writing, and most theatrical releases shelved until next year, Mickey and company's bread-and-butter has gone stale for the time being.
Comcast is dealing with the same situation. The big "however" is that Comcast's reliance on theme parks (primarily Universal Studios in Florida and California) and box office receipts is comparatively small. Just over half of Comcast's pre-COVID-19 revenue came from cable communications -- a segment that has notched slow and steady growth this year thanks to high-speed internet connections. Pre-COVID-19 theme park and filmed entertainment revenue from NBCUniversal was just over 10% of total revenue. In-person attendance venues closing up shop hasn't dealt nearly the blow to Comcast that it has to the House of Mouse.
The internet rules the day
Though sporting and live events have also been limited up to this point, media networks (cable, broadcast, and related advertising) are paying the bills at Disney these days. For Comcast, cable and broadcasting -- including its Sky division in Europe -- is a solid supplement to the communications division. But as a result of the difficult travel and movie-going environment, Disney has flirted with unprofitability this year while Comcast has remained in the black.
Viewed through this lens, Comcast stock -- trading for a mere 15 times trailing 12-month free cash flow even after enduring the worst of the pandemic -- is the better buy right now. Comcast derives more sales and profit from internet and related communications and advertising services, and Disney's outsized reliance on vacations and movie theaters may struggle to rebound until novel coronavirus has been defeated.
That's not to say Disney should be written off. The Magic Kingdom is setting itself up to do its own fair share of disrupting with its TV streaming aspirations, even reorganizing the unit to make more nimble decisions regarding content creation and how to monetize it (like sending it to the box office versus going directly to consumers Disney+ or one of its other services). Comcast has its own Peacock streaming service that will help it offset losses in cable TV subscriptions, but it won't be the same powerhouse as Disney's streaming TV properties. And looking further down the road, Comcast's highly profitable and growing internet business could come under pressure from 5G mobile networks (which could be used as a basic internet service replacement) or SpaceX's satellite-based broadband internet.
But for now, Comcast is in solid shape, and the potential future disruptors look priced into this value stock. Full disclosure, I own both Comcast and Disney, but I think shareholders of the latter will need to exercise more patience as the world figures out how to reopen and return to some sense of normalcy. For now, Comcast gets my tip of the hat.