Disney Just Made The Streaming Wars Even More Intense
At its 2020 Investor Day, Walt Disney Co (NYSE: DIS) tripled subscriber projections for Disney+ by 2024. It also revealed it will raise the monthly price to $8 which is the first price increase since the service launched last November, whereas Netflix Inc (NASDAQ: NFLX) took two years before making such a move. Overall, Disney's news was only another ground-shaking development in the streaming space. At the beginning of the month, Discovery unveiled its streaming service and AT&T' Inc.s (NYSE: T) Warner Bros. announced that its entire 2021 line of films will be released on HBO Max and in theaters at the same time. To say the least, things are getting interesting.
Record Growth In Subscribers
Disney+ now has 86.8 million paying subscribers as of December 2nd with Hulu counting 38.8 million, and ESPN+ gathering 11.5 million, making a total of 137 million paying subscriptions. Disney+ subscriber projections for the end of 2024 have been dramatically upped to a range between 230 million and 260 million. As a reminder, the guidance was 60 million to 90 million back in April last year.
Increasing Costs
Disney announced 100 new projects, with most of them heading straight to streaming channels. In a four-hour presentation on Thursday, investors gained a preview of new original content coming to Disney+, Hulu, and ESPN+ in the next two years. But those content investments will make streaming even more costly for the legendary company. CFO Christine McCarthy revealed that losses from Disney+ are expected to peak in 2021, whereas profitability is estimated to be achieved by 2024.
Disney's push into streaming includes a corporate reorganization to prioritize direct-to-consumer content, along with spending $8 billion to $9 billion on Disney Plus content alone in fiscal 2024, as part of $14 billion to $16 billion investment in direct-to-consumer content expenses across all three channels.
Disney+ Was Disney's Silver Lining During The Pandemic
The pandemic has hit Disney's theme parks and studio division extremely hard as the company swung to a loss of $710 million in Q4 that ended on October 3rd, 2020. This was its first quarterly loss since 2001 that contributed to a net loss for the full year of $2.83 billion. But even with lowered expectations, the comps are staggering. Theme parks lost $1.1 billion in Q4, whereas last year, they earned $1.4 billion in the comparable quarter. It lost $81 million for the year overall while in 2019, it earned a profit of $6.76 billion. Studio entertainment revenue shrank 52% in Q4 while profit dropped 61%. But Disney+ subscriptions were the silver lining as exactly one year after the streaming service launched, Disney+ captured the hearts of 73.7 million paying subscribers by October 3rd, exceeding even analysts' estimates of 65.5 million. So, it should not be surprising this is the direction in which Disney intends to go.
Roku Is The Winner
Roku Inc (NASDAQ: ROKU) shares rose last week after Citi raised its price target. Shares of Netflix might have done remarkably well this year, having climbed 53% so far but Roku's stock has more than doubled Netflix's performance as it gained 129%. The acceleration of cord-cutting during the pandemic resulted in a greater number of viewers for the platform's ad-driven content, up 43% YoY to 46 million. The trend also drove advertisers that needed to respond to the new trend and Roku attracts the younger demographic of viewers that advertisers want, enabling Roku to grow revenue 73% YoY during the third quarter, driven primarily by platform revenue that surged 78% thanks to digital advertising, the Roku Channel, and licensing of its operating system for smart TVs. There is no argument concerning Roku's potential as it only keeps benefiting from new entrants in streaming.
Don't Dismiss Netflix Just Yet
Netflix grew its paid subscriber base 23% YoY to 195.15 million last quarter, making it the world's largest premium video streaming platform by a wide margin. Its revenue and earnings rose 25% and 73% YoY, respectively, in the first nine months of 2020. Moreover, free cash flow turned positive in the first quarter and continued increasing over the following quarters. Netflix expects its revenue and subscribers to both grow about 20% YoY in the fourth quarter. As for the full year, analysts expect its revenue and earnings to rise 24% and 52%, respectively. As for next year, expectations are 44% and 18% as this year's success was fueled by the pandemic. Moreover, Netflix's production of original content wasn't meaningfully disrupted by the pandemic as it was mostly done before the lockdowns, whereas major Hollywood studios struggled with delayed productions and releases. But competition is intensifying. However, unlike Disney, AT&T and many other streaming service providers, Netflix's streaming platform remains consistently profitable. Netflix's scale, diverse portfolio, and robust growth rates easily justify its stock valuation.
Outlook
With quite a lot of dazzling and a pinch of corporate figures, the Disney 's investor day presentation unleashed some serious artillery. As legendary entertainment and media company restructures its businesses to focus on creating a pipeline of content for its streaming services, it is aggressively ramping up production plans. Disney's focus remains quality over quantity, something that has been its mantra for as long as it has been telling stories, whereas Netflix has an apparent high-volume approach.
Disney has sent a clear message to its fans: create space in your monthly budget for Disney-branded streaming services. As for the rest of the world and its streaming peers, Disney showed it its locked and loaded to win the world war in streaming.
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