One of the few places in which investors have found shelter from the market’s storms lately has been Walt Disney (NYSE:DIS) stock. Disney stock is up 4% in the last year while the S&P 500 has fallen over 3%.
That’s ironic because Disney’s survival strategy is to become more of a technology company, emulating Netflix (NASDAQ:NFLX), which has been hammered by the market, losing nearly 29% of its value in just three months.
Disney stock has hung tough because the market is assuming Disney’s streaming business will become huge. After launching an ESPN streaming offering this year, Disney plans to unveil an online entertainment service in late 2019.
Will ESPN+ Help Disney Stock?
Disney loudly proclaimed in September that ESPN+, its sports streaming service, had attracted 1 million customers who are paying $5 per month, then revealed that ESPN had lost 2 million cable subscribers during the year ending in September. Disney gets about $9 per month for each of those subscribers.
I subscribe to both ESPN and ESPN+. Plus is a better service.
While ESPN’s four cable channels televise a mixture of sporting events and talk shows, ESPN+ shows only sporting events. Do you want to get into Chinese soccer or Indian professional cricket? They’re both on ESPN+. The service shows the most obscure teams, leagues and sports live. DIS intends to steadily raise the cost of ESPN+.
As for the upcoming entertainment streaming service, Disney+, Disney plans to undercut Netflix on price, at least initially, and is steadily pulling content like Marvel out of Netflix to make consumers hungry for it.
By the time Disney+ launches, there will be a host of similar services in the market, from CBS All Access and FX Now to HBO Go and Showtime Anytime. Meanwhile, Amazon.com (NASDAQ:AMZN) offers Prime Video (which is free with Prime membership) and Alphabet (NASDAQ:GOOGL) has YouTube, which is free but has recently started a premium service. Every cable entertainment network will probably eventually launch a streaming service.
And Disney+ will cannibalize the revenue of the conglomerate’s broadcasting unit, whose revenues and earnings respectively jumped 21% and 66% year-over-year last quarter. Moreover, DIS has admitted that its streaming technology unit, BAMtech, lost money during the September quarter.
Disney Stock Has Been Powered by Parks
What’s powering Disney’s results and DIS stock are its theme parks.
The company’s Parks unit earned $4.47 billion on revenue of $20.3 billion during fiscal 2018.
Disney is investing more in parks than it is in its movie division, doubling the size of the Disney cruise line, adding new attractions to its U.S. parks, Disneyland Paris and the Disney Resort in China, and increasing security, because a single terrorist attack could ruin the whole thing.
The Bottom Line on Disney Stock
Disney stock is seen as a sure thing, but there’s nothing certain about its growth plan.
Investors are betting that Disney can make money on streaming, although so far it has not done so. They’re betting the parks business will keep growing, despite the fact that political tensions are increasing around the world.
They’re betting that people will keep going to movies, but that business is inherently risky.
It may all work out. But anyone who buys Disney stock based on those bets is speculating. The problem is that most investors don’t know that buying DIS stock is speculating.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.