The entertainment and streaming industry scarcely resembles what it was just a few years ago, with an influx of new competition and the COVID-19 pandemic vastly altering the market. Theater closures throughout 2020 and 2021 boosted the growth of new streaming platforms such as Walt Disney's (DIS -0.10%) Disney+ and Apple's (AAPL -1.60%) Apple TV+ as homebound consumers flocked to digital entertainment.
Apple and Disney were rarely compared before the launch of their new platforms, but now they are in direct competition as they fight over subscribers. Worth $59.1 billion in 2021, the video streaming market is expected to see a compound annual growth rate of 21.3% until at least 2023. As a result, now might be an excellent time to add a streaming stock to your portfolio.
Both Apple and Disney would be an asset to any portfolio, as the companies have significant market shares in multiple industries. However, one is the better buy. So let's take a look.
The company responsible for the iPhone has become one of the world's most reliable growth stocks, with Apple shares up 246% in the last five years despite a stock market sell-off in 2022. It has become a haven for tech investors this year, with the Nasdaq-100 Technology Sector index plunging 36% year to date while Apple's stock dipped a more moderate 18% in the same period.
In the fourth quarter of 2022, Apple defied expectations by reporting $90.15 billion in revenue, beating analysts' forecasts by $1.38 billion and rising 8.1% year over year. Operating income also rose 4.6% to $24.89 billion. The growth primarily came from the success of Apple's iPhone 14 lineup, which launched in September, with the smartphone segment increasing by 9.5% to $42.6 billion.
Along with revenue growth amid a year filled with macroeconomic headwinds, Apple has maintained its position as a cash leader. As of Sept. 30, Apple's free cash flow stood at $20.84 billion, while Amazon was at -$4.97 billion and Netflix at $471.85 million.
Apple has proven its resilience in 2022, with its products remaining in demand while multiple other companies suffered from decreases in consumer spending. With plenty of highly anticipated products to release in 2023 and a quickly growing services business, Apple makes an excellent stock to buy and hold for the long term.
Next year, the Walt Disney Company is entering its 100th year of business, solidifying it as one of the most successful entertainment companies in history. The House of Mouse has had a rough few years, with the pandemic wreaking havoc on its parks and box office revenue. However, its flagship streaming business has grown exponentially, hitting 235.7 million subscribers in Q4 2022, keeping a lead against Netflix's 223 million members.
While it made strides in streaming, Q4 2022 was largely disappointing for Disney investors. Revenue in the company's media and entertainment segment fell 3% year over year to $12.7 billion, with operating income plunging 91% to $83 million. Disney has spent the year investing heavily in Disney+, with its content spend throughout 2022 amounting to $30 billion. It has seen returns in the form of subscribers, but it will take time for the platform to reach profitability.
The bright spot for the quarter was no doubt Disney's parks business, which saw revenue grow 36% year over year to $7.4 billion while operating income gained 136% to $1.5 billion.
Disney has gone through a year of transition, spending 2022 investing in Disney+ and making changes in its theme parks to maximize profits. The long-term outlook is positive for the entertainment titan, with the company revealing in its Q4 2022 report that it expects Disney+ to reach profitability in 2024. Along with a flourishing parks business, Disney could have a bright future ahead, making it an excellent long-term buy.
However, Disney stock is hard to consider when compared to Apple. Disney's free cash flow as of Sept. 30 stood at $1.06 billion. While the figure is significant considering the company's content spending over the year, Apple's free cash flow is still over 18 times higher, making it more equipped to overcome further economic downturns ahead.
Disney's price-to-earnings ratio of 57 is considerably lower than what it was a year ago. But Apple's multiple of 24 is far more attractive. As a result, while Disney has excellent long-term prospects and will likely be home to a dominating streaming platform and booming parks business in the years to come, Apple is a more reliable stock, almost guaranteed to provide significant gains over the next five to 10 years.