Disney Continues to Impress (DIS)

Disney (NYSE:DIS) gave investors a first look at how successful the launch of its Disney+ streaming service has been. The company reported that the service has over 28 million users in the first three months. That’s nearly triple the 10 million subscribers the company gained when Disney+ launched in November 2019.

The subscriber numbers highlighted the company’s fiscal first-quarter earnings report in which, once again, Disney beat on the top line and bottom line. “The launch of Disney+ has been enormously successful, exceeding even our greatest expectations,” said Chief Executive Robert Iger on a conference call to discuss the report.

The success of Disney+, along with the continued growth in the Disney Entertainment division, continues to show the strength, and growing reach, of the Disney brand.

Disney Has Many Revenue Streams

Disney+ is the latest example of how Disney has become a global brand. Even as early as the 1970s, the company was expanding the reach of its brand with The  Wonderful World of Disney, a television program that made the brand aspirational to a generation of kids, who are now parents and even grandparents.

The Disney experience now goes beyond the company’s theme parks and resort properties (which still account for a large part of Disney’s revenue).  In fact, here is a breakdown of the company’s revenue streams for the fiscal first quarter.

Parks, Experiences and Products	$7.4 Billion	Up 8%
Media Networks	$7.361 Billion	Up 24%
Direct-to-Consumer and International	$3.987 Billion	Up 334%
Studio Entertainment	$3.764 Billion	Up 106%

 

Does Disney have any headwinds?

No stock is without blemishes and Disney has a few for investors to consider. The first is the continuing fallout from the contravirus in China. Disney has already suspended operations at its theme parks in Shanghai and Hong Kong. The company announced that those closures will affect its revenue projections for 2020. However, the impact has yet to be clearly known. At this time, the company is projecting operating income a Shanghai Disney to fall by $135 million in fiscal Q2. In Hong Kong Disneyland, Disney is projecting a revenue shortfall of $40 million for the same period.

Another potential roadblock for Disney is the entrance of new competitors into the streaming war. By the end of 2020, Comcast (NASDAQ:CMCSA) will launch their Peacock service and AT&T (NYSE:T) will launch HBO Max. Here’s why I think that is significant.

Some analysts are trumpeting the Disney+ subscriber number in terms of how long it took Netflix (NASDAQ:NFLX) to reach a similar number. From my perspective, that’s the wrong comparison…and the danger of blinding reporting statistics. Netflix was the first through the door. The company required a change in behavior for millions of consumers. Disney+ was entering a sector with consumers who were already open to streaming content.

The better litmus test for Disney+ will be when Peacock, HBO Max and others enter the arena. This will be the time when consumers will begin to experience the “streaming fatigue”. And eventually, when the free trial periods end, viewers will have to decide which services make the cut.

So far, Iger reports that the company has been very pleased with the lack of churn with Disney+, but that number will be tested. Approximately 20% of Disney+ subscribers are using the service as part of a free trial with Verizon (NYSE:VZ).

Why Disney stock is a buy

For me, Disney stock is a buy today. It’s a buy tomorrow. And it will be a buy for the foreseeable future. When you talk about a stock that “makes sense”, Disney is it. They have a pipeline of customers across varying platforms and across all age groups.

As evidence for this, subscribers are finding that Disney+ is giving households something for everyone. It’s not just the domain of parents using the service to keep their young children entertained. Viewers of every age can find something to watch.

At any given time, one of Disney’s business units may be underperforming another. And it can be easy for investors to focus on the negative. However, the strength of Disney is that the whole is greater than the sum of its parts. That being said, the parts are pretty strong by themselves.