It’s been a busy year for Walt Disney Co (NYSE:DIS). Operating in the media space is a risky business these days now that streaming subscription services have turned traditional cable on its head.
Walt Disney stock, with its respectable 1.50% dividend yield and relatively stable business, has remained a popular long-term bet for investors willing to wait out turbulence within the industry. However, the second half of 2017 saw Walt Disney stock plunge below $100 per share, creating somewhat of an opportunity for interested traders.
Now, with Walt Disney stock back on the upswing after news of the firm’s Twenty-First Century Fox Inc (NASDAQ:FOXA) acquisition, many investors are starting to wonder whether DIS is on track to be a major player in the new media landscape.
There’s no debating that adding FOX’s programming to the Disney umbrella will be a driver of long-term growth. But before you start celebrating the $52-billion deal, there are a few key questions to answer.
What’s Going to Happen to Hulu?
One of the most talked about aspects of the Disney-Fox deal is Hulu, an online streaming platform owned by Fox. As part of the deal, Disney will take over control of Hulu, something many are applauding as a way that DIS can compete with the likes of Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX).
As it stands right now, that’s absolutely true. Hulu is a direct competitor of the two streaming services, but Disney has yet to say whether the platform will continue on as is, perhaps being built out further to include Disney content, or if Disney will bundle Hulu programming into its own direct-to-consumer offerings.
There are benefits to both approaches. However, the thing that has gotten most investors excited is the potential for Disney to stream ESPN sports content via Hulu.
One of the biggest question marks has been about sports content. Many people are willing to continue with their traditional cable outlets because services like Netflix and Amazon don’t offer sports. Adding sports content to Hulu in some capacity could be a game changer that propels Hulu toward the top of the pack.
What About the Regulators?
Anyone remember what happened to Walgreens Boots Alliance Inc (NASDAQ:WBA) and Rite Aid Corporation (NYSE:RAD) once the regulators got involved? Of course, there was money to be made over the course of the drawn-out saga, but not if you blindly believed that the deal would go through.
With Disney’s FOX acquisition, the same is true. Regulators will have to approve the deal before it can happen, and the likelihood of there being some concerns is high. KeyBanc Capital Markets analyst Andy Hargreaves raised a good point when he downgraded FOX stock in a recent report.
He cautioned that everyone from sports teams to theater owners could potentially oppose the deal during the regulatory process because of Disney’s strong position in several different arenas. So it shouldn’t come as a surprise if the approval process drags on or winds up at a dead end.
What About Sky?
A lot of the hype over the Disney-Fox deal has been with regard to things like content rights and streaming, but it’s also important to note that Disney could also potentially own Sky TV, a U.K. broadcaster. At the moment, Fox officially owns 39% of Sky, and the company has been working to acquire the remaining 61% for £10.75 per share.
However, now that Disney is set to acquire Fox’s assets, including the company’s Sky ownership, Sky may try to hike up the price.
With the deal between Fox and Sky still very murky, investors should be wondering whether the European broadcaster will actually be a part of the deal. There’s also some questions about European regulators and whether they will have their own concerns about the acquisition.
Bottom Line on Walt Disney Stock
If everything goes according to plan, Walt Disney stock is likely to continue its upward climb in the years to come. The FOX acquisition is expensive, but it’s ultimately a good thing for DIS in the long run.
However, it’s very unlikely that everything will go to plan, especially once regulators are involved. Shareholders should expect some turbulence as the deal is scrutinized, but in the long term, DIS stock will probably continue to rise.
As of this writing Laura Hoy was long NFLX and AMZN.
