You can't take your family out to vacation at Rokuland. You won't see Roku (ROKU -3.29%) cranking out plush dolls, filling up cruise ships, or screening a promising blockbuster at a multiplex near you.
Roku and Walt Disney (DIS -1.79%) may not seem to have a lot in common, but they are both riding high as investments these days on the strength of their streaming businesses. Roku is a streaming pioneer, and between its fast-growing platform and its popular line of streaming devices it has all of its eggs in the digital basket. Disney is a more diversified media empire that was late to the streaming revolution, but it has more than made up for lost time. Disney+ is now generating 7% of its revenue, but Hulu commands a thicker 14% slice. Throw in ESPN+ and roughly a quarter of Disney's business is now coming from its direct-to-consumer digital platforms.
Roku and Disney realize that streaming is the future of video entertainment. Which one is the better buy for your portfolio? I own both, but I don't mind choosing one over the other by the time we're done here. Let's size up Roku and Disney to see their near-term prospects to beat the market.
Image source: Getty Images.
This is no Mickey Mouse operation
Disney is a natural-born athlete when it comes to entertainment. It's at the top or gaining quickly on the market leader in nearly all of its business segments. It operates the world's most visited theme parks. In 2019 -- the last year that movie theaters were at full strength -- it put out all six of the country's highest-grossing films. Things are a little more contested on the media networks front, but when it comes to sports programming everyone else is a distant silver medalist to Disney's majority-owned ESPN.
It's also a quick learner. It's been just 16 months since Disney+ was launched, and this month it announced that it has surpassed 100 million paying subscribers. The breakneck speed of the streaming platform's success is why Disney shares hit another all-time high last week, even when this fiscal athlete is not at the top of every game right now.
Its theme parks are operating under a short leash in terms of allowed daily capacity, and that's with its original Disneyland in California still not open. It finally put out its first theatrical release in a year, but it's been holding back on most of its multiplex content until the movie theater industry claws its way out of the pandemic. Disney's four cruise ships have been out of service since March of last year. Today's shortcomings aren't deal breakers. Disney is still the top dog among media stocks, and all of its currently slumping segments should recover as we recover from the COVID-19 crisis. Disney is a tough stock to top when it comes to entertainment, but then we have Roku to consider.
Image source: Getty Images.
Meet the Roku row crew
If you're looking for a company that's succeeding financially right now, Disney may not fit the bill. It has posted three consecutive quarters of double-digit declines in revenue, and its profitability has taken an even bigger hit. Disney+ is generating plenty of buzz, but the House of Mouse doesn't expect the streaming platform to be cranking out profits until 2024.
Roku doesn't offer the entertainment diversity of Disney, but it is killing it right now. The streaming pioneer fuels the TV streaming experience for 51.2 million accounts, 39% more than it was serving a year earlier. We're not just talking about folks choosing Roku devices to plug into their TVs to make them stream a growing number of third-party apps. A whopping 38% of all smart TVs sold now come with Roku built in as the operating system of choice.
We're streaming a lot these days. The average Roku home spends 3.6 hours a day on the platform, and between the growth in users and the surge in ad revenue per user, Roku's platform revenue soared 81% in its latest quarter. The other end of the income statement is also starting to turn the corner with Roku posting back-to-back quarters of profitability.
My own portfolio has made room for both Disney and Roku. They are two of my favorite media stocks. Disney is the blue chip here, and despite its recent struggles it will make sense as the choice for risk-averse investors. However, I do have a larger position in Roku than Disney. I like where it is at this early stage of the streaming revolution, and it continues to excel as an all-weather play in this booming niche. Both should be able to continue beating the market from here, but Roku is the better buy right now.
