The entertainment industry faces challenges like rising procurement costs for original content, stiff competition, and changing consumer viewing habits. However, the industry is looking to grow by understanding consumer behavior, offering ad-supported tiers, investing in regional and original content, expanding into newer geographies, and undertaking price increases on existing plans.
The industry is evolving, with technological advancements reshaping media production and AI refining content. High-quality streaming services are meeting growing demand, driving growth in the global media and entertainment market. The media and entertainment industry hit an estimated $27.72 billion this year and is expected to grow at a CAGR of 7.8%, reaching $40.36 billion by 2029.
Moreover, the video streaming market is projected to grow at a CAGR of 17.8% to reach $2.49 trillion by 2032.
Given this backdrop, let’s compare two Entertainment - Media Producers stocks, The Walt Disney Company (DIS) and Paramount Global (PARA), to understand why DIS is a better buy.
The Case for The Walt Disney Company Stock
The Walt Disney Company (DIS) operates as an entertainment company worldwide. The company engages in film and episodic television content production and distribution activities. It operates through two segments: Disney Media and Entertainment Distribution and Disney Parks, Experiences, and Products.
DIS’ stock has gained 41.3% over the past six months to close the last trading session at $112.73. However, it has declined 6% over the past month.
DIS’ EBIT grew at a CAGR of 106.5% over the past three years. Its revenue grew at a CAGR of 13.5% over the past three years. Moreover, its EBITDA grew at a CAGR of 33.8% during the same period.
In terms of forward non-GAAP PEG, DIS is trading at 1.37x, 6.8% lower than the industry average of 1.28x. Likewise, its forward EV/Sales is trading at 2.74x, 49.7% higher than the industry average of 1.83x.
In terms of the trailing-12-month EBIT margin, DIS’ 11.57% is 39.5% higher than the 8.29% industry average. Likewise, its 5.72% trailing-12-month Capex / Sales is 57.2% higher than the industry average of 3.64%. Moreover, its 8.26% trailing-12-month levered FCF margin is 1.1% lower than the 8.35% industry average.
For the first quarter that ended December 30, 2023, DIS’ revenues rose marginally year-over-year to $23.55 billion. Its total segment operating income came in at $3.88 billion, up 27.4% over the prior-year quarter. The company’s net income attributable to DIS rose 49.4% year-over-year to $1.91 billion. In addition, its EPS rose 48.6% from the year-ago value to $1.04.
On the other hand, its Entertainment revenues declined 6.5% year-over-year to $9.98 billion. Its cash, cash equivalents and restricted cash, end of the period fell 14.9% year-over-year to $7.25 billion.
Analysts expect DIS’ EPS and revenue for the quarter ended March 31, 2024, to increase 18.4% and 1.6% year-over-year to $1.10 and $22.16 billion, respectively. It surpassed the Street EPS estimates in three of the trailing quarters.
DIS’ stock is trading above its 100-day and 200-day moving averages of $104.30 and $94.97, respectively.
DIS’ POWR Ratings reflect its bleak prospects. It has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Stability. Within the Entertainment - Media Producers industry, it is ranked #8. In total, we rate DIS on eight different levels. Beyond what we stated above, we also have given DIS grades for Growth, Value, Momentum, Sentiment, and Quality. Get all the DIS ratings here.
The Case for Paramount Global Stock
Paramount Global (PARA) is a global media, streaming, and entertainment company. It operates through TV Media, Direct-to-Consumer, and Filmed Entertainment segments.
PARA’s stock has declined 13.7% over the past three months to close the last trading session at $11.91, However, the stock has gained 9.3% over the past six months.
PARA’s revenue grew at a CAGR of 5.5% over the past three years. Its levered FCF grew at a CAGR of 1.4% over the past three years. On the other hand, its EBITDA shrank at a CAGR of 23.4% over the past three years.
In terms of forward EV/EBITDA, PARA is trading at 8.19x, 6.7 higher than the industry average of 7.68x. However, the stock’s forward non-GAAP P/E of 10.63x is 20.5% lower than the industry average of 13.37x.
In terms of the trailing-12-month levered FCF margin, PARA’s 50.27% is 502.1% higher than the 8.35% industry average. Likewise, its 0.53x trailing-12-month asset turnover ratio is 11.1% higher than the industry average of 0.48x. On the other hand, the stock’s 32.49% trailing-12-month gross profit margin is 33.9% lower than the industry average of 49.13%.
PARA’s revenue for the fourth quarter, which ended December 31, 2023, decreased 6.1% year-over-year to $7.64 billion. Its adjusted OIBDA came in at $520 million, down 15.3% year-over-year. In addition, its adjusted net loss and adjusted diluted EPS from continuing operations attributable to PARA declined 40.6% and 50% over the prior-year quarter to $41 million and $0.04, respectively.
Street expects PARA’s EPS for the quarter ended March 31, 2024, to increase 296.7% year-over-year to $0.36. Its revenue for the quarter ending June 30, 2024, is expected to decrease 2.8% year-over-year to $7.40 billion.
PARA’s stock is trading below its 100-day and 200-day moving averages of $12.96 and $13.31, respectively.
PARA’s POWR Ratings are consistent with this outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.
It has a C grade for Growth, Sentiment, and Quality. Within the same industry, PARA is ranked #9 out of 11 stocks. To see the additional grades of PARA for Value, Momentum, and Stability, click here.
DIS vs. PARA: Which Stock Will Drive Your May Profits?
The entertainment industry is evolving to align with consumer preferences, utilizing digital tools for creative and cost-effective content. Expansion into newer regions, investment in local content, crack down on password sharing, and smart pricing strategies aim to enhance profitability. Companies like DIS and PARA stand to gain as technology transforms the entertainment industry.
Although both DIS and PARA have mixed fundamentals and stability, DIS appears to be a better choice than PARA due to its favorable analyst estimates and solid historical growth metrics.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Media Producers industry here.
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DIS shares were trading at $113.40 per share on Monday morning, up $0.67 (+0.59%). Year-to-date, DIS has gained 25.60%, versus a 7.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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