Disney vs AT&T Stock – Which Is Best?

In the 20th century, AT&T Inc. (NYSE:T) and Walt Disney Co (NYSE:DIS) could hardly be seen as rivals. But the modern incarnation of each has pitted them more firmly against each other as competition heightens in new battlegrounds, such as movie streaming.

Both Disney and AT&T pioneered new movie release models during the pandemic, and they are reopening plays that can thrive in either environment, but which is the better investment between Disney vs AT&T stock? 

The House of Mouse is one of the most recognizable brands and a favorite of both institutional and retail investors. While Disney financials nosedived when theme parks were shuttered, streaming, and licensing helped the firm outperform competitors, like SeaWorld Entertainment (NASDAQ:SEA), reliant upon park visitors to generate sales.

Meanwhile, AT&T’s role in the 5G race and other hot sectors helped to buffer it from the economic hurricane of 2020. Still, the telecom giant has a massive debt load, and it has underperformed rivals like T-Mobile. In fact, it’s looking to spin off WarnerMedia and walk away from the streaming wars.

We’ll take a ride with Disney and AT&T and Disney to determine which is the better value for investors.

Disney Subscription Revenue Mushrooming

Disney’s theme parks were shut down in 2020, but the company still showed major growth in its streaming segments.

In addition to its namesake brand, Disney owns ESPN and a majority share in Hulu. Both are powerhouses when it comes to subscriber acquisition and customer satisfaction. Brand deals and exclusive coverage of events like UFC pay-per-views act as tailwinds to support revenues.

Giants like Netflix (NFLX), YouTube, Amazon (AMZN), and Facebook have major stakes in online streaming. Disney Plus boasts over 100 million subscribers, while ESPN Plus has about 15 million subscribers in the United States. Hulu sits right in the middle with 41.6 million paid subscribers in 2021.

While impressive, it’s still below the 200 million+ subscribers that the streaming leader Netflix (NFLX) boasts. However, it’s also the biggest competition in that arena, and that’s just one revenue stream for the company.

Disney’s 12 theme parks earned $16 billion in revenue during the fiscal 2020 in the face of the pandemic. That’s Herculean given how detrimentally impactful closures were on theme parks globally.

Will Disney Stock Go Up?

Disney financials have already improved substantially. While it may be facing obstacles, the company still owns some of the hottest content on the planet, like the Star Wars series and Marvel hits. Black Widow, for example, brought in over $250 million at the box office with another $60 million on Disney Plus.

These figures showcase just how vital of a revenue stream its streaming service is. While retail investors pump money into AMC Theaters, Disney and others are finding low-overhead earning opportunities to earn nearly a quarter of the film’s revenue from in-house streaming platforms.  

And Disney has some box office films in its library that cannot be found elsewhere yet have a hugely loyal following – Lucasfilm and Marvel Studios are responsible for some of the highest-grossing movies of all time, including $6 billion in combined box office receipts for Avengers: Endgame, Avengers: Infinity War, and Black Panther alone.

Is Disney Business Model Fragile?

Although it’s a streaming, media, and entertainment giant, the fragility of Disney’s business model was exposed in 2020. Disney suffered from massive revenue decreases year-over-year, yet it must spend heavily to create blockbuster content.

While it has a seemingly endless library of content, there is plenty of competition from Netflix Originals and Apple has entered into the fray with its own movies too.

Some skeptics even suggest that there is a growing movement of anti-Disney sentiment in the counterculture. Combined with piracy, heightened competitive threats, and a risks to theme parks remaining open, threats to Disney moat are as high as ever.

It’s also important to remember the company’s blockbuster films come with high overhead. In fiscal 2019, for example, $11.1 billion in revenue earned $2.6 billion in operating profit. That’s a lot of cost for such a high-priced stock, making AT&T more appealing to some.

Is AT&T A Good Dividend Stock?

One of the biggest concerns for Disney (DIS) investors is that it suspended its dividend payment through the pandemic. While the dividend may resume soon, confidence among investors in the steady dividend payout has been shaken.

The company paid a $2.08 annual dividend in each of the two years leading up to the dividend suspension. This payout sustains income investors’ interest, even though AT&T debt is hard to stomach.

Management is certainly aware of the balance sheet anchor and has been taking appropriate steps to lighten the load, like selling non-essential businesses to focus on its core business of telecommunications.

Some analysts think that the days of AT&T’s dividends are numbered for good. If so, it may be a better time to jump ship from AT&T to Disney to take advantage of when it starts paying dividends again. And AT&T’s sale of WarnerMedia means it’s no longer interested in streaming.

Where Does WarnerMedia Fit Into The Picture?

WarnerMedia ownership changed hands a lot over the past 50 years, and AT&T bought the company in October 2016 before announcing in May 2021 that it is spinning off into a merger with Discovery Communications (NASDAQ:DISCA) to create a new company.

This company is unlikely to be a full-on competitor to Netflix or Disney. In fact, these companies and tech giants like Amazon (AMZN) and Apple (AAPL) are all rumored to be interested in potentially buying the merged company. By 2030, it’s possible that WarnerMedia and Discovery will be owned by someone else.

Is AT&T Making A Strategic Error?

The sale of WarnerMedia is a risky one. After all, AT&T’s revenues and earnings both declined 5 percent and 11 percent, respectively, in fiscal 2020. By comparison, WarnerMedia increased revenue by 10 percent, with HBO and HBO Max adding 2.7 million new subscribers.

It’s these businesses that held the company afloat financially while it weathered the storm of the pandemic in its telecom unit. The spin-off will give the company more money, but its staggering debt burden risks stymying returns for investors.

And the heavy spending it needs to stay in business means the company could be in more than a financial pickle before the end of the decade. As a 10-year plan, AT&T really needs 5G to pay off in a big way, and it’s not clear yet whether that will happen.

That makes Disney the smarter buy between the two stocks, as its diversified revenue streams have proven themselves in the past and it has a bright future of subscriber growth globally ahead. It can sustain profitability on content alone, and nobody on the planet has as deep a roster of globally recognized characters to draw from as Disney.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.