Disney (NYSE:DIS) just entered the increasingly competitive world of streaming entertainment last week with the debut of its highly-anticipated Disney+ streaming service. Analysts and investors knew for months that the streaming plan was on its way, but Disney stock still soared more than 7% last Wednesday, the day after the company officially launched Disney+.
That made Disney stock easily the best performer in the Dow Jones Industrial Average on that day, extending its year-to-date gain to nearly 35% while the Dow is up 20% on the year. It was easy to spot the catalyst for the big jump in Disney stock: the company said it lured 10 million subscribers the first day Disney+ was available.
That figure is “eye popping” and “considerably higher” than what Wall Street was forecasting, said Wedbush analyst Daniel Ives. Yes, it certainly helps that Verizon (NYSE:VZ) is offering Disney+ to its subscribers free of charge for a year, but that’s smart marketing on both companies’ parts. No, not all of those Verizon customers will keep the Disney service when the free trial is up, but plenty will, which could ultimately be a positive catalyst for Disney stock. Upcoming international launches should bolster the Disney+ subscriber base.
“On Nov. 19, Disney+ will launch in Australia, New Zealand, and Puerto Rico, and will launch in western Europe on March 31, 2020,” said JPMorgan. “The announcement surpasses our expectations. We now expect 15 million subscribers in first-quarter 2020 and bump up our full-year expectations from 15 million to 25 million.”
DIS Offers More Than Just Streaming
Streaming is a growth industry and has attracted plenty of glitzy growth companies, including Netflix (NASDAQ:NFLX), Prime from Amazon (NASDAQ:AMZN) and Apple’s (NASDAQ:AAPL) Apple TV Plus. So it’s easy to over-emphasize the potential, positive impacts on Disney stock that streaming may or may not have.
Remember that Disney stock was about 25% year-to-date before the streaming service debuted and not all of that gain was attributable to Disney+ anticipation. What that says is that investors have been appreciating other elements of the company’s business model, as they should.
Lost in all the talk about streaming and the company’s many box office successes is theme parks, one of Disney’s primary arteries to the consumer.
“Parks and resorts continue to shine with 8% growth as higher guest spending offset lower attendance at Disneyland,” said Morningstar in a recent report. “Domestic attendance was flat despite the hit from Hurricane Dorian in 2019. Per capita spending growth of 9% was impressive as was the 85% occupancy rate in bad weather.”
Disney’s theme park business is highly dependent on the strength of the U.S. consumer. Over the near-term, that’s a positive for the shares because the domestic consumer thesis remains sound. The strength of the consumer and Disney theme parks are intertwined; that applies to much more than park visits and spending at those venues and is particularly relevant with the holiday shopping season here.
“Disney’s other components rely on the world-class Disney brand, sought after by children and trusted by parents,” said Morningstar. “Over the past decade, Disney has demonstrated its ability to monetize its characters and franchises across multiple platforms–movies, home video, merchandising, theme parks, and even musicals. This stable of animated franchises will continue to grow as more popular movies get released by the animated studio and Pixar.”
Bottom Line on Disney Stock
Disney expects to have 90 million streaming subscribers in five years and the company has the content and spending capabilities to make that happen. At the end of the third quarter, Disney had $6.72 billion in cash on hand, but what isn’t getting the attention it deserves is that that figure jumped 55.52% on a year-over-year basis.
Additionally, Disney has a track record of smart acquisitions that have boosted return on invested capital (ROIC). Another big deal probably isn’t in the near-term cards, but previous buys, such as the 21st Century Fox’s assets and Pixar, are being effectively leveraged, boosting the case for Disney stock in the process.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
