Top Streaming Companies: Who’s Winning the Battle?

Key Points

• The streaming industry is undergoing significant changes, as companies have undergone rounds of layoffs to cut costs and streaming segments are achieving profitability, often for the first time.
• Ad-supported tiers and price hikes are increasingly the norm and impact top- and bottom-line performance for streamers.
• Subscriber growth remains a key metric for streaming platforms, but other measures of fundamental financial health are also crucial.

Though wildly popular with consumers, streaming companies have long struggled to achieve and maintain profitability. Over time, this has led providers like Netflix Inc. NASDAQ: NFLX and Paramount Global NASDAQ: PARA to experiment with tiered subscriptions involving advertisements, bundle offers, and a crackdown on password sharing, among many other strategies. Critics of streaming firms say that the massive price increases for most plans and the structural changes—combined with the proliferation of streaming platforms and the subsequent need for households to subscribe to multiple services to have the same breadth of viewing options—means that streaming has become increasingly like cable television.

NFLX: Big Earnings Growth Amid Shift to Ad-Supported Plans

Shares of streaming titan Netflix are up an astounding 87% in the last year. The company reports earnings in mid-October, and analysts again have an optimistic view, including an estimated 36% year-over-year improvement in earnings per share.

For Netflix, outperformance has become a norm to the extent that the company's share price sometimes reacts negatively, even following a strong earnings release. For example, after its second-quarter earnings release over the summer—when Netflix notched a 16.8% increase in quarterly revenue based on more than 8 million new subscribers—shares fell by about 1.5% based on lackluster third-quarter guidance.

Still, Netflix offers a strong return on equity of 32.9%, meaning that it able to efficiently use investments to generate profit. And the company has so far been successful at enticing users to its ad-supported plans, which helps to drive revenue growth.

DIS: Profitability and Price Hikes

Unlike Netflix, the Walt Disney Co. NYSE: DIS includes a great deal of other entertainment-related business lines in addition to streaming through its Disney+ platform. Since 2023, the company has eliminated several thousand positions in a cost-cutting measure aimed, in part, at combating a poor environment for ad sales.

Disney's efforts to trim costs have benefited its streaming business, which posted a notable first profit in the most recent quarter. Like Netflix, Disney has also cracked down on password sharing among members and is now offering a paid sharing option as a way of further boosting revenue.

Finally, Disney will increase prices on many of its streaming subscription plans and bundles in October, which will likely measurably benefit its bottom line now that it has achieved profitability in this space.

WBD: Significant Partnerships, But Declining Share Price

Warner Bros. Discovery Inc. NASDAQ: WBD is best known in the streaming space for Max (formerly HBO Max), as well as the lesser-known platform Discovery+. This firm has also engaged in multiple rounds of layoffs in recent months in an effort to limit costs.

WBD shares have lost about a quarter of their value in the last year and analysts remain cautious, rating the company a "hold" overall despite a consensus price target implying more than 40% upside potential. Weighing on the price of shares is the company's large pile of debt following the 2022 merger of WarnerMedia and Discovery.

On the plus side, Warner Bros. Discovery's streaming business is growing and now includes well over 100 million subscribers globally. The company's recent partnership with All Elite Wrestling could corner a sizable market for years to come. And Warner Bros. Discovery surprised the streaming world when it announced that subscribers of Spectrum, the cable TV offering of Charter Communications Inc. NASDAQ: CHTR, would also receive access to WBD streaming platforms, another bid to grow the user base.

Subscriber Growth Remains Key

The long-term metric by which investors have judged streaming platforms is the rate of growth of subscribers to these services. Given the intense competition among a large number of rivals, the ability to quickly capture a sizable share of the market is essential to any successful streaming company.

There is no doubt that subscriber growth remains an important factor to consider when looking at streaming firms. However, now that an increasing number of these companies are becoming profitable—or their streaming segments are becoming profitable—investors might also look to more traditional signs for clues as to the sustainability of these profits over time. Besides top- and bottom-line growth, debt loads, price/earnings and price/sales ratios, and other gauges of fundamental financial health are increasingly important.