ii view: Disney's streaming service makes flying start

by Keith Bowman from interactive investor |

Now battling Netflix, streaming subscriber numbers are being closely watched. 

First-quarter results to 28 December 2019

  • Disney+ subscribers grew to 26.5 million from 10 million at launch
  • Revenue up 36% to $20.86 billion
  • Segment operating income up 9% to $4 billion
  • Adjusted earnings per share down 17% to $1.53

Chief executive Robert A. Iger said:

“We had a strong first quarter, highlighted by the launch of Disney+, which has exceeded even our greatest expectations. “Thanks to our incredible collection of brands, outstanding content from our creative engines and state-of-the-art technology, we believe our direct-to-consumer services, including Disney+, ESPN+ and Hulu, position us well for continued growth in today’s dynamic media environment.”

ii round-up:

Following the launch of its own internet streaming service in mid-November, Walt Disney (NYSE:DIS), reported subscriber numbers of over 26 million, a jump from 10 million at launch. This exceeded analyst estimates of around 22 million. The initial rollout included the US, Canada and the Netherlands, with a further selected rollout in Europe due in March.

Disney, with its content catalogue of movies and children’s entertainment, will compete with current market leader Netflix (NASDAQ:NFLX) and the recently launched offering from Apple (NASDAQ:AAPL). Netflix in January reported a paid membership of 167 million. 

Management estimates for Disney+ of between 60 million and 90 million subscribers by the end of its 2024 fiscal year were left unchanged.

Adjusted earnings per share fell by 17% for the period, although marginally beat analyst expectations, hindered by launch costs for Disney+ and the consolidation of TV streamer Hulu, which it previously acquired a controlling stake in. 

The shares, and following a near 32% gain over 2019, were little changed in after-hours US market trading. 

ii view:

Owner of film studios including Pixar Animation, Marvel and the “Star Wars” franchise, recent Disney film successes have included its Lion King remake and The Rise of Skywalker.

But it is the launch of its Disney+ streaming service which is currently exciting investors. A strong content bank is expected to appeal to consumers. A monthly subscription fee of $6.99, below Netflix’s most popular service, appears to underline its intent. US telecoms provider Verizon Communications (NYSE:VZ) has added to early success with its free one-year promotional offer. 

For investors, a 2019 share price gain which outpaced the 29% upside for the broader S&P 500 index and a forward price/earnings (PE) ratio of around 26 - above the three and 10-year averages – offers some caution. The spread of the coronavirus and the closure of its Shanghai resort until further notice also warrant consideration. But Disney’s vast experience in the entertainment arena, a selection of other diversifying businesses and a forward PE metric comfortably below that of Netflix offer appeal. 

Positives: 

  • Diversity of businesses, strong brands and media content bank
  • Launched a streaming service to rival Netflix

Negatives:

  • Apple has commenced its own streaming service
  • Consumer leisure spend is cyclical and vulnerable to economic downturns

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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