During a year plagued by economic declines, countless stocks sunk to some of their lowest lows as hardly any industries were left unscathed. Despite being leaders in their respective sectors, Disney (DIS -0.45%) and Alphabet (GOOG 0.37%) (GOOGL 0.35%) shares plunged over 38% throughout 2022.
While these companies don't often directly compete, they are both in the business of entertaining consumers online, using ads to boost earnings. For instance, Disney's Disney+ and Hulu each offer ad-supported tiers, while Alphabet's YouTube attracts millions of daily viewers, heavily profiting from advertising. These companies' stocks tumbled in 2022 but have been rising since the start of the new year.
With potential recovery on the horizon, now might be an excellent time to invest in these industry leaders. So, is Disney or Alphabet's stock the better buy? Let's take a look.
Disney
The Walt Disney Company has experienced a challenging few years, to say the least, with the pandemic obliterating parks and box office revenue for most of 2020 and 2021. The company used the time to launch and expand its flagship streaming service Disney+ in an effort to diversify its business and take advantage of the growing digital market. However, while likely to pay off in the long run, its venture into streaming has been costly.
As a result, Disney's media and entertainment segment reported an 8% year-over-year revenue rise of $55 billion in fiscal 2022, while operating income fell 42% to $4.2 billion. The large investment in streaming content paid off in memberships, with Disney achieving the most subscribers in the industry in the third quarter of 2022 and retaining the top spot in Q4 with 235.7 million subscribers across Disney+, Hulu, and ESPN+ compared to Netflix's 223 million.
Beating Netflix for two consecutive quarters has also boosted Disney's stock by 24% year to date. On Jan. 19, Netflix reported an additional 7.66 million new members in its recent quarter, with Wall Street subsequently rallying over the optimism that Disney would once again beat its rival in its upcoming earnings report.
Despite recent difficulties, Disney looks to have a positive long-term outlook. January's success at the box office with Avatar: The Way of Water, crossing $2.1 billion to become the fifth highest-grossing film of all time, proves theater audiences are back. Meanwhile, the company expects Disney+ to hit profitability by 2024.
Alphabet
Alphabet shares tumbled 38% in the 12 months leading up to the new year as the company's advertising-dependent business suffered from declines in ad spending. However, the Google company's stock has begun to climb again in 2023, rising 10% since Jan. 1.
The slight recovery has been a response to inflation showing signs of easing, likely to boost the advertising market, and Alphabet announcing it would eliminate 12,000 workers. After economic challenges led work growth to outpace revenue growth in 2022, the move is positive.
Despite recent headwinds, Alphabet's solid positions in lucrative industries such as digital advertising and cloud computing make it likely to flourish well into the future. Meanwhile, the company's recent announcement that it will begin putting a bigger focus on artificial intelligence (AI) only strengthens its outlook.
Advertising spending has declined over the last year alongside rising inflation, as businesses have been forced to cut budgets. However, digital ads remain crucial to the growth of countless companies, with the slump temporary. Additionally, cloud computing is a booming industry worth $368.97 billion in 2021 and is expected to expand at a compound annual growth rate of 15.7% through 2030, according to Grand View Research.
Alphabet's Google Cloud held the third-largest market share in cloud computing at 11% in 2022, with the platform's revenue rising 37.6% in the company's latest quarter. With plenty of room for growth, Alphabet's cloud-computing service is well positioned to profit from the industry for years.
When comparing Disney and Alphabet's long-term stock growth, one stands out for its reliability.
Data by YCharts
It is important to remember that in three out of the last five years, Disney's business was hit by unavoidable headwinds with the pandemic and economic challenges. However, Alphabet's business has continued growing even under strain. Regarding financial growth, Alphabet's revenue has grown 88% since 2018 compared to Disney's 39%. Meanwhile, Alphabet's operating income has soared 162% against Disney's negative 52% in the same period.
Disney looks to be on the right path. However, Alphabet's long-term performance and exciting developments ahead make it a more reliable and better buy.
