Media conglomerate Walt Disney Co. (NYSE:DIS) has long been an investor favorite with it’s impressive performance history, security and 1.6% dividend yield. However, times are a-changing in the media industry and the result has been skepticism among investors. Disney’s hugely diversified business and ability to roll with the punches has been enough to keep traders from abandoning the House of Mouse, but DIS stock doesn’t come without its baggage.
DIS stock is down 8.6% so far this year, making now a good time to assess whether or not the media firm is right for your portfolio. However, before you jump in with both feet — here are three questions worth considering when it comes to Disney’s future.
What Will Its Streaming Service Look Like?
One of the biggest reasons investors are sniffing around DIS stock right now is that the company is about to enter the streaming space. Disney has been preparing to roll out its own direct-to-consumer streaming channel over the past year and the time has finally come for that offering to come to market. During the company’s most recent earnings report, DIS management announced that the first piece of that service, ESPN Plus, will become available this spring.
What’s interesting about ESPN Plus is that it is set to offer live sporting events, something that has been missing from subscription services thus far. The service will cost $4.99 per month and is being marketed as an extra for the “ultimate sports fan.”
However, ESPN Plus is just the beginning of Disney’s streaming ambitions. The firm is starting to pull its content off of rival services like Netflix Inc. (NASDAQ:NFLX) in preparation for the 2019 launch of its own streaming service. DIS is not only planning to stream its massive content library, but the firm will also produce new content based on some of its most popular franchises like Marvel and Star Wars.
The success of Disney’s streaming service is closely tied with the company’s future — and I for one think there’s room in the industry for DIS to succeed, given that the channel is affordable and the firm is able to beef up its content offerings. To do that, Disney will need to up its spending on content creation and hope that its FOX merger goes through.
Does Acquiring Twenty-First Century Fox Inc. (NASDAQ:FOX) Make Dollars and Sense?
Disney’s agreement to acquire FOX is another question mark that shareholders should have their eyes on. The deal itself looks pretty incredible for DIS stock’s future, however there are so many unanswered questions that it’s definitely not a sure thing just yet.
First of all, there are two possibilities in which the deal doesn’t go through at all. Recent rumors suggest that Disney might not be the only one courting FOX right now — apparently Comcast Corporation (NASDAQ:CMCSA) is also considering making a play for FOX.
While CMCSA has made no formal offer as of yet, rumors suggest that the company may be looking for a way to get a piece of FOX. There’s a chance Comcast will try to acquire all, or most, of FOX’s assets or the firm could bid for a part of FOX, namely the firm’s European arm Sky.
Even if Comcast doesn’t swoop in, Disney might still struggle to acquire FOX due to regulatory concerns. As we’ve seen with several high-profile mergers over the past few years, it can be a long and arduous process trying to create a scenario in which regulators are happy. And even if FOX and DIS jump through all of the regulators’ hoops, there’s still a chance the deal won’t be approved.
Where Are Theme Parks Headed?
Disney has a wide variety of businesses, but as its latest earnings results showed, theme parks are a huge part of its success. Right now revenue from Disney’s parks makes up over a third of the company’s total revenue and was the only business under the Disney umbrella that was able to grow in the fourth quarter. While shareholders are hoping that’s not the case for long, it’s important to keep an eye on the firm’s parks.
Recently, Disney quietly hiked its Disney World admission prices, much to the chagrin of it’s customers. Most notably, tickets during peak times like school holidays saw a 5% hike, while normal traffic period tickets rose $4. Annual passes for Florida residents increased by $50 per year.
On one hand, Disney’s success in theme parks gives it some pricing power and allows the company to raise prices. The firm clearly sees enough demand, especially during peak periods, to substantially raise its fees. On the other hand, the backlash from disgruntled Mickey fans could hurt the firm’s image and discourage people from visiting the parks.
The Bottom Line on DIS Stock
DIS stock is certainly not a bad bet, especially right now while its share price is down. However, with the FOX deal hanging in the balance, we might see some more volatility as negotiations continue.
If the firm loses out on FOX completely, that’s a problem for Disney’s larger streaming ambitions and could hurt Disney stock considerably. However, if you think DIS can compete with the likes of NFLX and Amazon.com Inc. (NASDAQ:AMZN) all on its own, now might be a good time to add the firm to your portfolio.
As of this writing, Laura Hoy was long AMZN and NFLX.