The entertainment industry has had a challenging couple of years, with pandemic closures in 2021 hampering theater and amusement park revenue and increased streaming competition in 2022 resulting in a heated war over subscribers.
As a result, it has become crucial to invest in entertainment companies with diverse businesses that can continue growing regardless of market conditions.
Shares in Disney (DIS +0.54%) and Amazon (AMZN -0.99%) have tumbled more than 40% since January amid a sell-off as critical business segments have suffered revenue declines.
However, the companies have continued to report growth as other segments have managed to pick up the slack.
Disney and Amazon are some of the biggest names in their respective industries, with their stock declines offering investors a potential bargain.
So, which is the better buy? Let's find out.
Disney
The Walt Disney Company has watched its stock slide 44% year to date, with shares dipping almost 8% from Dec. 14 to Dec. 21 after the underwhelming opening of Avatar: The Way of Water.
The sequel to the highest-grossing film of all time earned $134 million in its opening weekend. Disney had estimated between $135 million to $150 million, and industry analysts projected an average of $175 million.
The dismal returns were primarily fueled by reduced theater attendance in China, the franchise's biggest market.
While movie theaters in China remain open, a recent spike in COVID-19 cases has stunted ticket sales.
In its latest quarter, Disney's media and entertainment segment saw revenue fall 3% year over year to $12.7 billion, while operating income fell 91% to $83 million after a $30 billion investment in content throughout 2022 to expand Disney+.
As a result, Disney may have been counting on success from Avatar: The Way of Water to instill confidence in investors.
NYSE: DIS
Key Data Points
Despite a challenging year in Disney's media segment, its thriving parks business has propelled the company.
In fourth-quarter 2022, parks revenue soared 36% year over year to $12.7 billion, with operating income increasing more than 100% to $1.5 billion as pandemic reopenings welcomed guests back in droves.
As revealed in its Q4 2022 earnings report, the company expects "operating losses to narrow going forward" and for Disney+ to "achieve profitability in fiscal 2024."
Along with four Marvel blockbusters lined up in 2023, and the final installment to the Indiana Jones franchise, next year will likely see much-improved media earnings alongside continued growth in its parks.
Disney is coming off a rough year, but its heavy investment in content has paid off by attaining the most streaming subscribers in the industry.
Next year could see its stock rise consistently as operating losses decrease and it prioritizes profits in its streaming business, with theater releases and theme parks taking care of the rest.
Amazon
As a titan of e-commerce and cloud computing, Amazon is one of the most diverse companies participating in the entertainment industry.
The company's Prime Video streaming service has become a staple in most U.S. homes. It is included in Amazon's Prime subscription service, which hit 157.4 million domestic members in 2022, about 59.8% of the US population.
However, Amazon's stock has plunged 50% year to date, with economic headwinds stifling e-commerce earnings.
In third-quarter 2022, the company's North American revenue rose 20% year over year to $78.8 billion, with operating income reporting a negative $412 million. Meanwhile, foreign exchange fluctuations resulting in a strong dollar caused its international segment to decrease by 4.8% and operating losses to hit $2.4 billion.
Despite a challenging year for e-commerce, Amazon's cloud computing business in Amazon Web Services (AWS) kept the company afloat by providing 100% of its operating income in Q3 2022. The segment had revenue increase 27% year over year to $20.5 billion, while operating income hit $5.4 billion.
After a year of economic decline, Amazon's third quarter highlighted the importance of having multiple revenue streams from varied industries.
NASDAQ: AMZN
Key Data Points
The most attractive part of Amazon's business is AWS, with its leading 34% market share in an industry worth $368.97 billion, expected to have a compound annual growth rate of 15.7% until 2030.
Amazon is well-positioned to see significant gains from cloud computing for the long term and should be on a great path once temporary declines in e-commerce resolve.
After substantial hits to shares and revenue in 2022, Amazon and Disney are going into the new year on the back foot.
The companies will likely start to turn things around in 2023, but it will take time for them to meet their full potential. With stocks such as Microsoft and Apple around, which offer considerably better value, neither Disney nor Amazon seems like a must-buy right now.
However, if you're dead set on one of these companies, I'd choose Disney for 2023.
It suffered this year from heavy content spending; however, it's ringing in the new year as a leader of streaming, with a plan to reduce operating losses, and a stacked lineup of major theatrical releases. Meanwhile, a potential recession could cause Amazon's e-commerce business to decline further in 2023.
