If Needham analyst Laura Martin is even only vaguely right about Walt Disney (NYSE:DIS), investors may want to step into DIS stock sooner rather than later.
Martin’s exact words, posted in her note tom nvestors on Wednesday were : “We project DIS will win (and NFLX lose) the U.S. SVOD [subscription video on demand] battle.”
Martin went on to explain that “U.S. consumers have shown a reluctance to add to their three SVOD services. This implies that DIS’s projected 20 million to 30 million U.S. subs [subscriptions] by 2024 will mostly come from Netflix’s (NASDAQ:NFLX) 60 million U.S. subs.”
Indeed, the launch of Disney’s robust streaming package in November could cause serious trouble for Netflix . Although Netflix’s expected subscriber losses won’t inherently translate into added profits for Walt Disney, the stock market may reward DIS stock all the same.
And even if Disney’s upcoming on-demand video package isn’t wildly successful initially, it could set the stage for growth that could meaningfully boost Disney’s bottom line in time.
What Martin Said
As Martin, the Needham analyst, noted, consumers are seemingly more likely to ditch one streaming-video service and replace it with another than to simply tack on more services.
There’s evidence to support the theory. One layer of evidence surfaced in May, when Hub Research determined that 24% of consumers felt they already subscribe to too many streaming options. A year ago, the figure was 14%, meaning that the trend is working against Netflix, and in some regards even working against Walt Disney and DIS stock. And there’s no conclusive evidence that as many as half of Netflix’s current U.S. subscribers will cancel their service after DIS launches its competing offering.
Still, over one-third of the people surveyed by Hub Research conceded they would cancel one of their streaming video subscriptions if they chose to sign up for another. That bodes badly for Netflix stock.
Additionally, Deloitte determined from data compiled in one of its recent surveys that 47% of U.S. consumers are frustrated by the expanding number of video-streaming services they feel like they have to sign up for in order to watch the programming they want.
DIS is hoping to exploit that situation with a value-priced, quality-packed suite of options.
Walt Disney to Offer Choices
DIS has already revealed a piece of its penetration strategy that should make Netflix as well as players like Amazon.com (NASDAQ:AMZN) nervous. That is, DIS plans to offer consumers a choice.
Disney’s ESPN+ is already a standalone option, offering sports fans access to a great deal of sports at a price of only $4.99 per month. Hulu, now mostly owned by Disney, is available for $5.99 per month with ads or $11.99 per month for the ad-free version. Disney+, set to launch in November, will cost $6.99 per month. All three aforementioned services from Walt Disney — ESPN+, Disney+ and Hulu — will be offered as a bundle for $12.99 per month.
Netflix, for comparison, starts at $8.99 per month for a package that’s fairly limited. To watch the company’s content on more than one device and in high definition costs a minimum of $12.99 per month.
Although some consumers will pay for both video-streaming services, many will choose just one based on content quality and quantity.
Netflix has a great deal of high-quality content but with franchises like Star Wars and Marvel plus all of Fox’s and NBC’s content, DIS is clearly going to be a contender as well.
The Bottom Line on DIS Stock
The concept of winning and losing in the video-streaming space isn’t nearly as black and white as Needham’s Martin made it out to be. She went on to explain that Disney’s streaming options would provide Netflix with fierce competition, rather than vanquishing it. Moreover, she believes that NFLX is only vulnerable to DIS in the U.S. Netflix now does more business overseas, where Walt Disney doesn’t appear ready to compete with a differentiated service.
Still, the revenue generated by Disney’s streaming platform could provide DIS stock with a positive catalyst, particularly if it takes a bite out of Netflix’s dominance. Investors love late-bloomer stories as much as they love pioneers.
As a result, the owners of Disney stock may not care if Disney+ doesn’t turn an actual profit for years.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.