ZACKSยท2025-09-22 16:55Core Insights - The streaming landscape is dominated by Disney and Netflix, with both companies reporting significant developments in their second-quarter earnings in 2025 [1] - A detailed comparison of the fundamentals of both stocks is necessary to determine the better investment opportunity [2] Disney's Investment Case - Under Bob Iger's leadership, Disney has shown operational improvements across all segments, with fiscal third-quarter revenues of $23.65 billion and adjusted EPS of $1.61, exceeding expectations despite a 2% revenue growth [3][4] - Disney+ has reached 128 million subscribers, adding 1.8 million in the latest quarter, indicating continued growth [3] - The Experiences segment generated $2.5 billion in operating income, supported by strong consumer demand and the launch of the Disney Treasure cruise ship [4] - Disney's fiscal 2025 guidance projects adjusted EPS of $5.85, an 18% increase from fiscal 2024, with direct-to-consumer operating income expected to reach $1.3 billion [5] - The company plans $8 billion in capital expenditures for fiscal 2025 to support growth initiatives, with a strong content pipeline extending beyond 2025 [5] Netflix's Investment Case - Netflix reported a 16% revenue growth to $11.08 billion in the second quarter, with an operating margin of 34.1%, but faces concerns about sustainability due to higher content amortization and marketing costs [6][8] - The decision to stop reporting subscriber numbers quarterly has raised transparency concerns among investors [8] - Netflix's full-year revenue guidance of $44.8-$45.2 billion indicates healthy growth, but the company must justify its premium valuation amid normalizing growth rates [8][9] - The reliance on expensive tentpole productions and limited revenue diversification beyond subscription fees poses structural challenges for Netflix [9] Valuation and Performance Comparison - Disney trades at a P/E ratio of 17.56x, significantly lower than Netflix's 40.25x, suggesting that the market may be undervaluing Disney's turnaround potential while overvaluing Netflix's growth prospects [10] - Year-to-date, Disney shares have gained approximately 2.2%, while Netflix has surged nearly 37.7%, indicating a potential entry point for Disney as operational improvements continue [14] Conclusion - Disney is positioned as the superior investment opportunity due to its discounted valuation, operational momentum, and diversified revenue streams, contrasting with Netflix's premium pricing and limited diversification [16]