Which Streaming Giant is Worth Investing in 2025: Disney or Netflix, Revisited?
In the ever-evolving world of media and entertainment, the cord-cutting trend continues to gain momentum. According to data from eMarketer, less than half of U.S. households still hold on to their traditional linear subscription packages. This secular shift has left numerous industry giants rethinking their strategies.
Two frontrunners in the streaming war are Netflix (NFLX -1.10%) and Disney (DIS 1.81%). Netflix, thanks to its early-mover advantage, has amassed a staggering 1,530% return over the past decade, spurring the cord-cutting movement. Meanwhile, Disney, with its unparalleled intellectual property, is also poised to emerge as a streaming titan.
But which one is the smarter buy for 2025? Let's dive into the roadmaps of both companies.
Disney's Dynamic Pivot
Disney's business has been undergoing a significant transformation as its legacy networks continue to suffer from cord-cutting. Despite the losses, they remain a rich source of profit. Disney's direct-to-consumer (DTC) streaming operation, however, has yet to turn a profit as it focuses on building its content library.
However, the DTC segment showed promise with two consecutive quarters of positive operating income. Disney's leadership is optimistic, projecting over $1 billion in operating income by fiscal 2025, excluding ESPN+.
Disney's crown jewels include its iconic characters, franchises, and storylines, as well as ESPN, the undisputed leader in sports programming. Disney announced plans to launch a full ESPN streaming service this fall, guaranteeing an enthusiastic response from sports fans.
The DTC segment isn't the only bright spot in Disney's portfolio. Theme parks, cruise lines, and consumer products are also significant contributors to its financial success. Disney intends to invest a staggering $60 billion in these areas over the next decade to safeguard its position at the top of the media and entertainment industry.
Netflix's Dominance
Besides its early-mover advantage, Netflix has maintained its lead thanks to its affordable and seamless user experience. In the fourth quarter of 2024, the streaming giant added 18.9 million net new subscribers, swelling its user base to 301.6 million, making it a true global media powerhouse.
Netflix's strong position is further bolstered by its pricing power. The company has consistently increased the prices of its various subscription tiers, capturing the value it offers viewers. A recent price hike didn't deter its subscriber growth, which has continued to surge over time.
The company rallied to report an operating margin of 27% in 2024, thanks to Q4 operating income soaring by 52%. The forecast predicts an operating margin of 29% in 2025, benefiting from scale and boasting $8 billion in free cash flow this year.
Valuation and the Future
Streaming seems set to become an indispensable part of our daily lives. Based on past trends, Netflix certainly seems like the frontrunner in the streaming race right now.
However, its valuation might be a cause for concern. As of January 22, Netflix trades at a forward price-to-earnings (P/E) ratio of 40. This lofty valuation could be a tempting entry point for some investors, but Netflix's growth rate is expected to slow down as it approaches its current massive size.
This brings us to Disney, which trades at a significantly lower forward P/E ratio of 20, a 50% discount compared to Netflix. Combine this with Disney's competitive strengths and rising profits, and it has the potential to yield market-leading returns for investors over the next few years.
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Based on the current financial performance and future plans, Netflix (NFLX) is predicted to provide better returns for investors in 2025 compared to Disney (DIS). Here are the key points:
- Revenue Growth: Netflix is expected to grow its revenue by 12% to 14% in 2025, reaching $43.5 billion to $44.5 billion, with an operating margin of 29%[2][3]. Disney's revenue growth is not specified in the same detail, but it is noted that Netflix outpaced Disney in revenue growth in the fourth quarter of 2024[3].
- Subscriber Growth: Netflix added a record 18.9 million subscribers in the fourth quarter of 2024, surpassing Wall Street's expectations[2][3]. This strong subscriber growth is expected to continue, with Netflix aiming to strengthen its core business by producing more content that resonates with viewers[2].
- Content Strategy: Netflix has a vast content library with over 18,000 titles, allowing it to cater to a wide range of tastes and preferences, making it a one-stop shop for entertainment[3]. The company is also exploring new initiatives like live programming and gaming, which could further enhance its appeal[2].
- Ad-Supported Tier: Netflix's ad-supported tier has been successful, driving 55% of all sign-ups in markets where the plan was available in the fourth quarter of 2024. This strategy is expected to contribute to revenue growth in 2025[3].
- Market Sentiment: Market sentiment suggests Netflix stock is a “Moderate Buy” with 27 analysts recommending a “Strong Buy” and an average price target of $1,059.47, indicating potential upside of approximately 9% over the next 12 months[2].
- Analyst Predictions: Several analysts have set high price targets for Netflix, with JPMorgan analysts setting a target of $1,150 and one Wall Street analyst expecting the stock to hit $1,100 by the end of 2025[5].
They say the future belongs to the bold. In the realm of streaming, the bedrock of media and entertainment, a daring bet on either Netflix (NFLX) or Disney (DIS) in 2025 could yield rich rewards.
In the realm of finance and investment, many are considering whether Netflix or Disney is the smarter buy for 2025, given their significant roles in the streaming industry. Despite Netflix's early-mover advantage and impressive revenue growth, its high valuation might give potential investors pause. On the other hand, Disney, trading at a lower forward P/E ratio, offers a more attractive entry point, considering its competitive strengths and rising profits.