Last year, streaming and entertainment companies were brought under the spotlight as economic headwinds dragged down shares of the industry's leaders. Companies such as Walt Disney (DIS -0.71%) and Warner Bros. Discovery (WBD 0.72%) experienced stock declines of 44% and 63%, respectively, in 2022.
However, these entertainment giants remain the home of hard-hitting franchises with solid positions in theme parks, streaming, and at the box office. Disney and Warner Bros. Discovery may have stumbled last year, but they have positive long-term outlooks thanks to never-ending, perpetual demand for the entertainment industry.
A diversified portfolio can be the key to consistent gains, with the inclusion of an entertainment stock a step in the right direction. So let's consider whether Disney or Warner Bros. Discovery's stock is the better buy.
Disney: A stock you can buy now and hold forever
The Walt Disney Company joined the New York Stock Exchange in 1957, and its stock has gained almost 5,000% since then. The company's potent brand has provided gradual but consistent gains over the long term. For instance, despite recent challenges, Disney's stock is up 69% over the last decade.
The company owes its reliability to its substantial market share in different facets of entertainment. As of 2019, pre-pandemic, Disney held a global 52% market share in amusement parks. Then in 2021, Disney achieved a leading 25.5% market share at the box office in the U.S. and Canada, with the second-largest share going to Sony at 23.1%.
Additionally, the third quarter of 2022 saw Disney amass a leading 25% market share in video streaming between Hulu and Disney+, while Netflix came second with 21%. The achievement is impressive, considering Disney+ first launched in November 2019.
Disney has a solid position as the entertainment king, with brands like Marvel, Star Wars, Pixar, and Walt Disney Studios keeping consumers returning to the House of Mouse. The company's stock is down 30% year over year, signaling a buying opportunity for this growth stock.
Warner Bros. Discovery: A small risk for the possibility of big gains
While Disney offers consistency and reliability, Warner Bros. Discovery is slightly riskier as it doesn't have the history to back up its potential growth. The company is the product of WarnerMedia and Discovery's merger last April, which saddled the company with $43 billion in debt and contributed to its stock slide in 2022.
Massive debt and controversial restructuring moves may have concerned investors last year, but the company's stock has soared 53% year to date. Warner Bros. Discovery has rallied investors by announcing 2023 will be a year of "relaunching and building." Company CFO Gunnar Wiedenfels said during the Citibank's 2023 Communications, Media, and Entertainment Conference in January, "I think the team has laid a great foundation," a slight reference to 2022's numerous slashes to content and layoffs.
While critics questioned Warner Bros. Discovery's restructuring decisions last year, the company seems to have slimmed down to lower costs and focus on quality content. This strategy could significantly pay off over the long term. Prior to the merger with Discovery, WarnerMedia was experiencing dwindling interest in its DC and Harry Potter-themed Fantastic Beasts film series, with declining box office returns.
However, it has since brought on celebrated Marvel alum James Gunn to co-lead the future of DC properties. Meanwhile, a recent success with Harry Potter-themed video game Hogwarts Legacy -- selling over 12 million units and earning $850 million in its first two weeks -- has reinvigorated the franchise. Along with other lucrative brands such as Game of Thrones and The Lord of the Rings, Warner Bros. Discovery likely has a fruitful future.
Is Disney or Warner Bros. Discovery the better buy?
Whether to buy Disney or Warner Bros Discovery's stock really depends on your personal investment strategy. Disney is a tried-and-true stock that will undoubtedly pay off if held long enough, but the gains will be gradual. Meanwhile, Warner Bros. Discovery's stock is down 45% on the year despite its recent rally, with potential for massive growth. However, it has a mountain to climb to reach profitability and pay down its debt, making it a bigger risk.
The companies' 12-month price targets reflect their growth potential. Disney's average 12-month price target of $129 is 35% higher than its current position, while Warner Bros. Discovery's price target of $21.77 is 50% higher.
As a result, if you want a stock you can buy and forget about as it gradually trends up, buy Disney stock. But if you are willing to bet on a company still figuring things out, buy Warner Bros. Discovery. Whichever you choose, plan on holding for the long term for the most gains.
