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Disney reports Q4 earnings, sees strength in Disney+ paid subscribers

CFRA’s Tuna Amobi joined Yahoo Finance Live to break down Disney’s fourth-quarter earnings report and the lastest subscriber numbers for Disney+.

Video Transcript

JULIE HYMAN: All right. Let's move on to Disney, a very big company that already is public, of course. And that company came out with its earnings after the close yesterday. And as we talked about, subscriber growth for Disney+ better than estimated, 73.7 million even as the rest of the business is not doing so hot.

Tuna Amobi is joining us now. He's an analyst at CFRA who covers Disney. So, Tuna, as you look at these numbers, yes, Disney+ is doing great, but not much else is, right? So how long can Disney sustain that kind of disconnect?

TUNA AMOBI: Julie, I think, you know, it's no surprise that the streaming offerings, Disney+, ESPN+, and Hulu have become, you know, the brightest spot in the Disney empire. So we know that, you know, COVID-19 has taken a very significant toll on the theme parks as well as the media networks and the film divisions. So what's happening right now with Disney is kind of a recalibration of the model to a direct-to-consumer.

And as you alluded to, 120 million global subscribers for the three offerings. And particularly, [? company ?] first-hand investor of Disney+ now closing in, you know, at $74, $75 million, I think. That's a huge outperformance by any stretch.

When you put all that together, with the tailwinds that we're seeing in COVID-19, I think Disney, really, right now is breathing down the neck of Netflix in terms of potentially catching them, you know, sooner than later. And that's why you're seeing the stock trade at such a huge premium. That being said, I think the near-term visibility continues to be limited by the COVID-19 surge. As we just heard Anjalee's report, that is something that continues to be an overhang for the theme parks and the film.

But if you can look beyond that, our thesis is that Disney has come off [INAUDIBLE] earnings in the last fiscal year. For this year, they still got a few speed bumps to navigate in [? this ?] [? coming ?] [? quarter-- ?] December quarter with the, essentially, some of the parks still closed or operating at significantly reduced capacity. The theaters still, you know, having some stutter steps in terms of reopening. But I think as we kind of look towards the back half of this fiscal year, and if we improve prospects of vaccine development, Julie, we continue to believe that Disney's one of the prime beneficiaries of a potential re-opening of the economy with the vaccine prospects.

BRIAN SOZZI: Tuna, one number I'm hearing talked about this morning on the street is 250 million. Disney exited the quarter with over 120 million streaming subscribers. When do you think they can more than double that number? And where would that growth come from?

TUNA AMOBI: That's a great question, you know, Brian. I think as we kind of think about the next three to five years, the catalyst that we see for the continued growth of the streaming would be the international rollout of Disney+, now in 20 countries and set to ramp up significantly from here on out. They're gonna be launching in Latin America and a few other markets in the next few days.

And then added to that is this star-branded entertainment offering, which they've announced is gonna be their general entertainment offering, which is also on track with the launch. And then you add to that the significant momentum that we're seeing in domestic market, not just for Disney+-- remember, ESPN+ and Hulu are all accelerating as well. So all things kind of tied together with the tailwinds from COVID-19, you know, our thesis is that COVID-19 has actually expanded the addressable market of these streaming offerings.

So to your question more precisely, Brian, we think that it's quite realistic to expect that in the next, you know, three to five years, potentially much earlier, it could double that number. If you remember when they laid out the case for the streaming and investors, they-- investors last year, they kind of laid the case for 60 to 90 million subscribers globally in the first five years. In hindsight, that kind of looks like, you know, it was really a ridiculous number because they blew past that. And now it's close on the one year anniversary of Disney+.

The challenge is going to be to keep those subscribers, those free trials that they had when they launched Disney+ with the Verizon partnership. But they've added a ton of content since that, right? They've got season 2 of "Mandalorian," just launched a couple weeks ago. A ton of new content that should help to keep engagement high and churn relatively manageable.

MYLES UDLAND: You know, Tuna, you mentioned Netflix. And when you think about that company and its shareholder base, they have, obviously, completely different expectations for profitability and how that's going to work. Do you have any concerns as an analyst that the Disney investor base would lose their nerve as the business model pivots towards what the company explicitly says is an unprofitable part of the business.

And, you know, I thought Bob Chapek's comments yesterday were quite interesting when he said the sports rights, they look at it on a shareholder-friendly basis. He's certainly more cognizant of how his investors think about the company. And I think Reed Hastings, who kind of says, well, we're gonna do whatever we're gonna do. You can get on board if you want. And I think that's a big shift for this management team over the next five years.

TUNA AMOBI: Right. Now, Myles, I think you ask-- you brought up a pretty good point. And I think The Street is actually in for some surprise in terms of the potential inflection to profitability for these streaming offerings. ESPN and Hulu, more specifically, have actually been doing some of the heavy lifting on the profit side with advertising and substitution growth while Disney+ remains in a very heavy investment mode.

So while the company has telegraphed-- and we think it'll still be a few years before we see a profitability for the international-- for the streaming offerings as a whole-- we think the timeline for that could actually be pulled forward just based on the better-than-expected performance that we're seeing from ESPN+ and Hulu. So that being said, I think, you know, everyone expects Disney+ to invest heavily. They're still in startup mode launching across international markets.

So, you know, I think if you look at this quarter-- they just reported on the other last quarter-- the expectations in terms of the aggregate losses from the international-- from the streaming and direct-to-consumer segment actually came in better than expectations. So I think that the trajectory that we expect is gonna be volatile. But over time, I think you're gonna see a smoothing out effect where, you know, the profitability for that, I think, will be sooner than The Street is currently expecting.

JULIE HYMAN: All right. So, Tuna, we'll have patience. We'll see about the rest of The Street. Tuna Amobi, CFRA analyst, thank you so much. Appreciate it, Tuna.