The streaming market has become an unpredictable battleground in 2022 as multiple companies duke it out for the top spot. Walt Disney (DIS -0.72%) and Netflix (NFLX -1.49%) have sent investors on a roller-coaster ride throughout the year, with the companies seemingly passing the streaming crown back and forth as they one-up each other on subscriber count from quarter to quarter.
These companies have immense potential and have both expanded into new markets over the last few years. Disney dipped its toes into the streaming market with its Hulu service many years ago, but the launch of Disney+ in 2019 saw it enter the market in full force. Meanwhile, Netflix entered the gaming industry with the launch of its Netflix Games in 2021.
Netflix and Disney have been compared countless times in 2022 and will likely continue to be as they strive to dominate the streaming world. Both companies' stocks have dipped considerably since January, prompting investors to wonder if now is the best time to buy. So, let's see whether your money is better off with Disney or Netflix.
Netflix
As one of the leading founders of the streaming industry, Netflix enjoyed many years largely unchallenged. But its market share has gradually decreased since the introduction of platforms such as Disney+, Warner Bros. Discovery's HBO Max, and Apple's Apple TV+, all of which entered the market between 2019 and 2020. From the first quarter of 2020 to the second quarter of 2022, Netflix fell from 42% market share to 26%.
As a result, Netflix experienced its first subscriber losses in a decade in the first quarter of 2022, shedding 200,000 paid members. The loss led its stock to plunge 37% in a single day on April 20, with the share price down 51% year to date as of Oct. 22. Despite a troubled beginning to the year, Netflix has seen significant improvements to its business since then.
In the second quarter of 2022, it forecast a loss of 2 million subscribers but reported a more modest loss of 970,000. Then on Oct. 18, Netflix released its third-quarter 2022 results, which showed an increase of 2.4 million members, beating a forecast of 1 million.
However, the most significant improvement to Netflix's business isn't its return to subscriber growth, but its shift in strategy, which prioritizes moves that will grow its earnings and free cash flow in the long term.
Netflix's plan to launch an ad-supported tier on Nov. 1 and monetize unpaid views by cracking down on password sharing in 2023 are ways for the company to boost its average revenue per membership and earnings over time. Moreover, if done right, its gradual expansion into games could also pay off in the long term.
Disney
Like many companies that rely on consumer demand, Disney's share price has tumbled. It's down 37% since January. Fears of a recession and rising inflation have made investors wary of entertainment and streaming stocks because such companies' services could be the first to go for consumers cutting discretionary spending.
But Disney is a solid buy for the long term. Throughout the pandemic lockdowns prevalent in 2020 and 2021, when it suffered significant losses from park closures, the company grew its flagship streaming service, Disney+. The platform launched at a time when home-bound consumers drove up demand for streaming services, offering Disney+ a massive boost right out of the gate.
As a result, the company has come out the other side with solid momentum. Guests returned to its parks, sending revenue from that segment soaring 70% to $7.39 billion in its latest quarter. Meanwhile, its streaming business surpassed Netflix in August for the most subscribers.
Disney is a varied company whose revenue stems from multiple businesses, including content released via both theaters and streaming, licensing agreements across numerous platforms, amusement parks, and more. Meanwhile, Netflix is still finding its footing. The streaming titan has big plans to diversify and bolster its business, but it is still in the early stages.
Consequently, Disney is the more secure stock for the long term. Netflix has taken promising strides in 2022 to improve its business, but Disney has spent decades honing its dominance in multiple markets, making it strong enough to invest in a new streaming venture. And Disney stock is selling at a bargain with a price-to-earnings ratio less than half of what it was a year ago.
So now is a great time to buy Disney stock.
