Shares of Disney DIS popped roughly 2% Monday, along with many other Dow components as markets bounced back on some slightly positive U.S.-China trade war updates. Wall Street and investors were also likely pleased to see more concrete updates on Disney’s streaming TV future to challenge the likes of Netflix NFLX from this past weekend’s D23 Expo.
Disney+ & Streaming Future
Disney highlighted and teased an array of new content from movies to Disney+ TV shows and locked in some subscribers at the D23 Expo. Executives utilized the three-day event, geared toward die-hard fans, to sign up some of its first Disney+ members, who were offered the chance to purchase a three-year subscription of the new streaming service at a discount.
Disney+ will officially launch on November 12 at $6.99 a month, or $69.99 for a full year, and feature both new and old movies and TV shows from Disney, Pixar, Star Wars, Marvel, and National Geographic. Going forward, all of Disney’s theatrical releases will eventually live on its streaming services. And Disney will soon arguably hold the most diverse streaming portfolio in the industry: Disney+, ESPN+, and Hulu.
After much speculation, CEO Bob Iger seemingly confirmed on the company’s early August quarterly earnings call that Disney will offer customers the chance to bundle all three services for under $15 a month. The entertainment giant has for the last serval years prepared to enter the next phase of its business as it aims to compete against Netflix, Amazon AMZN, Apple AAPL, and others in the streaming space. This push was highlighted by its $71.3 billion deal—completed in March—to acquire key 21st Century Fox FOXA assets.
Someone asked us to formally introduce ourselves so of course we made a video. pic.twitter.com/VZLrJ6ff7k— Disney+ (@disneyplus) August 19, 2019
Disney now offers a wide range of brands that will help it reach a broader audience beyond Disney’s core, family-friendly content. Marvel and Star Wars have already proved to be some of the best deals Disney has ever made as they rake in billions at the box office. Through Fox, Disney now owns everything from The Simpsons to Avatar. Yet the company will still debut Disney+ at a discount compared to Netflix’s cheapest plan, which costs $8.99 a month and doesn’t offer HD.
Disney’s price point should help its brand new streaming service attract consumers. The company then hopes its slate of new programming, much of which will be exclusive to the service, will keep people hooked. Disney has said it expects to have between 60 million and 90 million subscribers by the end of fiscal 2024. The company is set to spend billions over the next several years to roll out Disney+ and hopes the streaming service becomes profitable within this five-year window, as it ups its expected $1 billion cash investment in fiscal 2020 to roughly $2.5 billion by 2024.
Investors should note that Morgan Stanley MS analyst Benjamin Swinburne has projected that Disney+ could reach more than 130 million subscribers globally by 2024. This clearly comes in far above the company’s own estimates, and still falls short of the 151.56 million paid global subscribers Netflix closed Q2 with. Meanwhile, Amazon Prime boats over 100 million subscribers, even though it is unclear how many even use Prime Video.
Q4 & Beyond
Looking ahead, our Zacks Consensus Estimates call for the entertainment conglomerate’s Q4 fiscal 2019 revenue to jump 32.6% to reach $18.97 billion. This would fall almost exactly in line with last quarter’s top-line expansion, but we need to remember that last quarter was the first time Disney’s Fox deal and its Hulu ownership were included. The company’s full-year fiscal 2019 revenue is projected to jump roughly 18% to $70.05 billion, with 2020 expected to come in 16.3% higher at $81.47 billion.
At the bottom end of the income statement, the firm’s Q4 earnings are projected to tumble roughly 24%, with Disney’s full-year fiscal 2019 EPS figure expected to fall over 15%. The company’s earnings are expected to climb 3.6% above our 2019 estimate next year.
Disney’s earnings estimate revision picture has also trended in the wrong direction recently. But Wall Street is prepared to see Disney’s earnings slip as it spends heavily on its streaming future.
DIS shares have climbed over 22% in 2019 to easily outpace the S&P 500’s 12% climb. Disney stock is also up 31% in the past two years, which blows by the Media Market’s 3.3% jump. Despite the recent strength, shares of Disney rest nearly 9% below their 52-week high. This could give DIS room to run heading into the launch of Disney+ in November.
Overall, Disney stock appears to be a solid long-term play even though its near term earnings outlook appears rough. Disney also pays a $1.76 annualized dividend, with a 1.34% yield at the moment that looks more and more attractive as the bond yields fall. In the end, Disney might be the most diverse stock to own in all of entertainment, which includes ESPN, amusement parks, toys, box office hits, and a new streaming future.
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