In the past, Netflix (NASDAQ:NFLX) and AT&T (NYSE:T) generally weren't considered competitors. Netflix owned one of the world's largest video streaming platforms, and AT&T mainly provided wireless, wireline, and pay TV services in the U.S. and Latin America.

But the two companies' interests started overlapping after AT&T bought Time Warner two years ago. That $85 billion purchase laid the foundations for AT&T's new streaming media ecosystem, which it hoped would offset its ongoing loss of pay TV subscribers at DirecTV, U-verse, and AT&T TV.

A young woman watches a streaming video.

Image source: Getty Images.

AT&T's plans were ambitious, but it continued to disappoint investors with the slow growth of its wireless segment, its shrinking pay TV business, and its mountain of debt. As a result, its stock tumbled nearly 30% over the past 12 months and erased its dividend gains.

Meanwhile, Netflix dazzled investors with its robust growth in subscribers, revenue, and profits, and its stock surged nearly 80% during the same period. But will Netflix continue to outperform AT&T over the next 12 months? Let's take a fresh look at both companies to decide.

Faint glimmers of hope for AT&T

AT&T's operating revenue and adjusted EPS declined 6% and 10%, respectively, in the first nine months of 2020. Its wireless business struggled in the first half of the year as the COVID-19 crisis shut down retailers, the WarnerMedia group faced closed theaters and postponed movies, and its pay TV business continued to lose subscribers to streaming services.

But AT&T's recent third-quarter report featured three encouraging developments. First, it added 5.53 million domestic wireless customers, which easily beat the consensus forecast of 2.84 million net adds.

Second, its combined HBO and HBO Max domestic subscribers surpassed 38 million, up from 36 million in the second quarter. Within that total, its HBO Max activations more than doubled. Lastly, it ended the quarter with $152 billion in debt -- down from $180 billion after it closed the Time Warner deal.

Yet AT&T's revenue and earnings still declined year-over-year during the quarter, mainly due to its loss of over half a million pay TV subscribers and WarnerMedia's pandemic-induced slowdown, and analysts expect its revenue and earnings to drop 6% and 11%, respectively, for the year.

Looking further ahead, analysts expect AT&T's revenue and earnings to both rise about 1% next year as new 5G handsets arrive, WarnerMedia restarts its operations, and its streaming platforms gain more subscribers.

Netflix is still firing on all cylinders

Netflix's revenue and earnings rose 25% and 73%, respectively, in the first nine months of 2020. Its total subscribers grew 23% year-over-year to 195.15 million during the third quarter, and its free cash flow improved from negative $551 million to positive $1.15 billion.

A young woman watches TV in a dim room.

Image source: Getty Images.

Netflix expects that momentum to continue in the fourth quarter, with 20% growth in revenue and subscribers. Analysts expect its revenue and earnings to rise 24% and 50%, respectively, for the full year.

However, Netflix attributes a lot of its growth in the first half of 2020 to the COVID-19 pandemic, which boosted the usage of streaming media services as more people stayed home. Netflix expects that tough year-over-year comparison to be reflected in its slower subscriber growth in the first half of 2021.

Nonetheless, analysts still expect Netflix's revenue and earnings to rise 18% and 42%, respectively, in fiscal 2021. The company expects its FCF to come in between negative $1 billion and breakeven for the year, as it spends more money on original and licensed content, but CFO Spence Neumann said the company was "rapidly closing in" on "sustainably" positive free cash flow.

Netflix's massive base of subscribers enables it to leverage economies of scale against its smaller competitors, many of which are still racking up losses on their streaming platforms.

The winner: Netflix

AT&T's stock looks cheap at nine times forward earnings, and its forward dividend yield of 7.7% looks tempting. But the stock is cheap for obvious reasons, and its declining stock price has repeatedly erased its dividend gains in recent years.

Netflix's stock initially seems expensive at 56 times forward earnings -- but its first mover's advantage, its sticky ecosystem, and its robust growth in revenue, subscribers, and profits all justify that slight premium.