Better Buy: Apple vs. Disney

Until fairly recently, Apple (NASDAQ: AAPL) and Disney (NYSE: DIS) were rarely discussed in the same realm outside of their connection with Pixar, a subsidiary of Disney co-founded by Apple's Steve Jobs. However, the companies are now competitors in streaming, with Apple TV+ and Disney+ launched in 2019 and actively striving for more subscribers.

In 2022, tech and entertainment companies were struck by macroeconomic headwinds with inflation rises, leading consumers to cut back on discretionary spending. As a result, Disney and Apple's stock fell over 26% throughout 2022.

However, these companies remain leaders in their respective industries, which will likely grant them fruitful long-term futures. So, is Apple or Disney stock the better buy? Let's assess.

Apple's long-term advantages remain intact

As a dominating presence in consumer electronics, Apple has achieved the highest market cap in the world at $2.4 trillion. Products like the iPhone, MacBook, iPad, AirPods, and Apple Watch have given the company significant market share in various markets. Meanwhile, Apple's walled-garden strategy and priority on quality has created an almost unparalleled brand loyalty.

In fact, in September 2022, the company officially surpassed Alphabet's Android for most smartphone market share by hitting 50%. The achievement is a promising step for Apple considering consumers' tendency to stick with one operating system for the long term and rarely change. As a result, Apple has a major advantage when touting its other products and services, all easily used alongside the iPhone.

Apple's dominance in smartphones gives its services business a lucrative long-term outlook. In fiscal 2022, services earned the second-highest amount of revenue for the company after the iPhone. The segment earned $78.1 billion in revenue, growing 14% year over year, which was double the iPhone's growth in the same period. Additionally, services profit margins came to an attractive 71.7%, while the same metric for products reached 36.3%.

The adoption of digital services like Apple TV+, Music, iCloud, and more has skyrocketed in recent years, with the immense popularity of the company's products likely to keep it profiting from the expanding industry.

Disney is still a leader in streaming

Disney suffered considerably in 2022, with its stock plunging roughly 44% throughout the year. The company started last year at a disadvantage after theater and theme park closures during the COVID-19 pandemic stole large portions of its revenue for nearly two years. Then in 2022, Disney had to contend with economic declines, which made expanding its flagship streaming service Disney+ costly.

As a result, Disney's stock has tumbled roughly 10% over the last five years. However, despite the setbacks, the company's stock remains a compelling long-term buy. Over the last decade, Disney's stock has risen 60%, which isn't far off its 76% growth from 2002 to 2012, considering recent headwinds.

Moreover, Disney's stock dip has significantly increased its value. The company's forward price-to-earnings (P/E) ratio has decreased by roughly 37% over the last year to 22. The chart below shows that the figure is the lowest and offers the most value compared to some of Disney's biggest streaming competitors.

AMZN PE Ratio (Forward) Chart

Data by YCharts.

Furthermore, as of the third quarter of 2022, Disney held the most market share in streaming, with 25% between Hulu and Disney+, while second place went to Netflix at 21%. Comparatively, Apple TV+'s market share came to 7%. So, if you're looking to invest specifically in streaming, Disney's stock might be the best bet.

Apple stock is the better buy today

Apple and Disney dominate their respective industries and have much to offer over the long term. However, Apple's stock decline of 26.8% compared to Disney's 43.9% amid an economically challenging environment in 2022 suggests Apple is the stronger and more reliable business.

Additionally, Apple's five-year stock growth of 242% against Disney's near-10% decline continues to illustrate the strength of the iPhone company. Apple may not be leading the way in streaming, but the diversity of its digital services and the success of its products makes its stock the better all-around buy over Disney.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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