Can Walt Disney Co (DIS) Stock Spend Its Way to Gains?


Walt Disney Co (NYSE:DIS) is approaching a critical point in its TV business. DIS is going to have to make a decision soon about how to proceed in the TV business. If it doesn’t, it will risk losing its market share in the space to over-the-top and/or streaming service providers and Walt Disney stock could take a plunge as a result.

Can Walt Disney Co (DIS) Stock Spend Its Way to Gains?

The traditional cable TV model is dying a slow death. In its place, streaming services like those provided by Netflix, Inc. (NASDAQ:NFLX) and, Inc. (NASDAQ:AMZN) are taking over.

In addition, over-the-top TV providers such as Sling TV by DISH Network Corp (NASDAQ:DISH) and PlayStation Vue by Sony Corp (ADR) (NYSE:SNE) provide cheap streaming alternatives to live cable TV.

The OTT competition is getting more crowded by the day. Just this week, AT&T Inc. (NYSE:T) launched its new DirecTV Now service. All of these “skinny” streaming TV bundles are much cheaper than traditional cable. They are also much more convenient to view on connected devices other than TVs.

At this point, there are few realistic options for DIS stock if it doesn’t want to go down with the cable TV ship. Here’s a look at some of the best options for Walt Disney stock’s long-term survival.

DIS Can Build Its Own Steaming Service

The strongest evidence that DIS could be considering a ground-up approach is the company’s recent $1 billion investment in BAM Technologies. BAM was the driving force behind Major League Baseball’s MLB TV streaming service. DIS says the companies will be working together on a streaming sports offering. There’s no reason why they couldn’t extend that partnership outside of the sports realm.

Building from scratch may be the worst option of all for Walt Disney stock. DIS certainly has the cash and the resources to build a competitive streaming service from the ground up. Unfortunately, it may not have the time. Competition in the space is already fierce, and the market may be nearly impenetrable several years from now.

So what other options are there for Disney stock?

Could DIS Stock Win Big With Netflix?

If Disney wants to enter the streaming video space with a bang, buying out the top brand in streaming is certainly the way to do it. With a market cap of $50 billion, there are only a handful of companies that could actually manage a NFLX buyout. Walt Disney is one of them. Bernstein analyst Todd Juenger believes DIS could easily acquire NFLX for up to $70 billion in an all-cash deal. A move that big would require an estimated 5x leverage.

Bernstein is on the fence about which direction Disney should go when it comes to Netflix.

“We stress that we are not calling for a deal,” Juenger wrote. “But we are not not endorsing one, either.”

Perhaps the most obvious reason for Walt Dinsey to buy out NFLX is so it won’t have to compete with the streaming juggernaut in the future. A Netflix acquisition would also eliminate the uncertainty of a do-it-yourself project involving BAM. NFLX might be a much more expensive option, but it would be a case of “you get what you pay for.”

Walt Disney Can Buy Twitter

If cost is a concern, Walt Disney could choose to make a deal that is somewhere between starting from scratch and buying the top brand in streaming. Twitter Inc (NYSE:TWTR) could be a good compromise. TWTR has just started to dip its toes into streaming video in the past year. The social media giant has had initial success streaming NFL Thursday Night Football, the presidential debates and other live events.

TWTR stock certainly has its fair share of problems, but it could be quite a bargain compared to NFLX. Twitter stock currently has a market cap of only around $13 billion.

The key advantage a TWTR-based streaming service would have over any competitors would be its massive installed user base. TWTR already has 313 million users, and its app is already installed on millions of devices.

The TWTR audience coupled with Walt Disney content and BAM expertise could be a recipe for a new streaming TV service that wouldn’t need several years of development to become competitive. This could be a big benefit to DIS stock later down the road.

Bottom Line on Walt Disney Stock

There’s no question that Disney is interested in some form of direct-to-consumer service. CEO Bob Iger came right out and said it on the company’s last earnings call.

“We think there’s some really interesting opportunities given what’s going on from a technological perspective, to both improve our business and also improve the consumer experience by selling directly to consumers,” Iger said.

Don’t be surprised if Walt Disney makes a major streaming video acquisition in the next coupe of months. Whatever happens, there are bound to be some big changes for DIS stock.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.

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