Can a Decades-Old Company Surge Like a Tech Stock?
For the most part, Walt Disney Co (NYSE:DIS) is known as a mass media and entertainment conglomerate. It has been around for more than nine decades and was largely left out of the huge stock market bull run in the last several years.
This year, though, things could be different for Disney stock.
Let me explain…
Walt Disney Co operates through four main segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media.
As it turns out, Media Networks—which includes a vast array of broadcast, cable, and radio businesses like ABC, ESPN, and Disney Channel—is by far the company’s largest segment in terms of both revenue and profits.
And that is not exactly the best recipe for a soaring stock in this day and age.
You see, for years, consumers have been shifting from watching cable TV to streaming videos on demand over the Internet. This pattern, known as cord-cutting, is a frequent argument used by Disney stock bears.
And they do have a point. When people can watch endless content on demand just by paying a small fee to Netflix, Inc. (NASDAQ:NFLX) or Amazon.com, Inc. (NASDAQ:AMZN), traditional cable TV doesn’t look that appealing. Over the years, many cable networks—including some operated by Disney—have experienced declines in viewership.
The neat thing is, Disney is not standing still. The company is preparing for the launch of its own streaming service, which will be called “Disney+.”
A Big Catalyst for Disney Stock in 2019
Now, you are probably wondering why this is a big deal for the company. Since millions and millions of people are already subscribed to “Netflix” or “Amazon Prime Video,” why would they bother with a different service?
Well, the answer lies in Disney’s high-quality content library. Other than Disney’s own blockbusters, the company also owns the content from Pixar, Marvel, and Star Wars, among others. These franchises already have a huge fan base around the world. And once Disney pulls its content from Netflix—a move the company already announced—Marvel and Star Wars fans will have to go to Disney to enjoy their favorite movies.
And they should have little problem signing up for Disney+ due to its pricing. According to the company’s chief executive officer Robert A. Iger, Disney’s streaming service will cost less than Netflix. (Source: “How Hollywood Is Racing to Catch Up With Netflix,” Variety, last accessed January 15, 2019.)
Now, keep in mind that Netflix is already quite cheap, with its basic plan starting at less than $10.00 a month. So with Disney+ expected to be even cheaper, there will likely be plenty of Marvel and Star Wars fans who wouldn’t mind spending a few dollars a month to sign up for the service.
At the latest earnings conference call, Iger said that the company plans to launch Disney+ in late 2019. (Source: “The Walt Disney (DIS) Q4 2018 Results – Earnings Call Transcript,” Seeking Alpha, November 8, 2018.)
If you look at the stock price performance of Netflix in the last several years, you would know just how enthusiastic investors have been toward the on-demand video streaming business. While Disney’s content library is going to be smaller than Netflix’s, the huge followings of its franchises means Disney+ will find an audience.
In my opinion, launching Disney+ is going to be the biggest catalyst for Disney stock this year. However, it should also be noted that streaming is not the only thing the company can count on. For instance, Disney has a bunch of upcoming films with blockbuster potential this year, such as Captain Marvel, Toy Story 4, and Star Wars: Episode IX, just to name a few.
At the same time, the company has already been growing its financials. In the fiscal year ended September 29, 2018, Disney’s revenue grew eight percent year-over-year to $59.4 billion while its adjusted earnings surged 24% to $7.08 per share. (Source: “The Walt Disney Company Reports Fourth Quarter and Full Year Earnings for Fiscal 2018,” Walt Disney Co, November 8, 2018.)
Bottom Line: Disney has always been a solid company. The expected launch of its own streaming service should help alleviate Disney stock’s pain from cord cutting and allow market participants to focus more on the growing aspects of the company.