After three months of underperformance, the shares of Walt Disney Company (NYSE:DIS) are again flirting with a record high. The latest momentum is backed by investors’ enthusiasm that the media company’s foray into the streaming business will be a great success.
And there is little reason to doubt investors’ faith. Its new video-streaming platform attracted 10 million customers after its Disney+ service debut in the U.S. and Canada last Tuesday. That staggering number surprised analysts, who had expected Disney to take much longer to reach that level.
Just to put that number in context, it took HBO Now about four years to reach about 10 million streaming subscribers. As we have been emphasizing in our earlier articles, Disney has everything it takes to build a competitive streaming video product to challenge its rivals, including the incumbent Netflix Inc (NASDAQ:NFLX).
Disney owns many successful content franchises that its rivals envy. Star Wars and Marvel, for example—as well as its large catalog of children’s classics, from “Cinderella” to “Aladdin” to “Moana,” will make its streaming service a formidable player in a market that is going to be very crowded soon.
The company is adding depth to its service by quickly signing agreements with tech giants, along with a promotional tie-in with Verizon Communications Inc (NYSE:VZ). Chief Executive Officer Bob Iger said last month that Disney+ will start rolling out in Western Europe in March, sooner than many thought.
Disney surprised the media world with a low price for its Disney+ streaming service that is nearly half of Netflix’s most popular $12.99 monthly plan. According to a recent poll conducted by The Wall Street Journal and the Harris Poll, surveying roughly 2,000 adults to gauge the market sentiment about the streaming services, some 47% of survey respondents said they were likely to subscribe to Disney+.
Streaming Wars
With early signs of an overwhelming response to Disney’s successful streaming service launch, analysts are fast shifting their view on the company, which has to control costs from getting out of hand and to integrate the Time Warner assets it acquired last year.
From here, “Disney+ should take the wheel in determining the trajectory of the stock,” said Bernie McTernan, an analyst at Rosenblatt Securities, in a recent note. He saiid the launch will likely be a positive for Disney stock, giving it a price target of $170. The shares closed yesterday at $147.15.
MoffettNathanson analyst Michael Nathanson also had a “buy” rating on the stock with the price target of $150 a share.
“We might be underestimating the size of the first year of launch,” he said in a recent note. “The market is sensing big things are brewing in the quarters ahead,” and momentum in subscriber growth may become the “sole focus” for investors.
Sanford C. Bernstein analyst Todd Juenger has predicted that Disney+ could have 20 million subscribers in its first year.
Reacting to this market applause, Disney shares hit a record high yesterday at $150.63 after surging about 14% in the past two weeks. Their upward move is also backed by strong results for the quarter that ended on Sept. 30, showing that the company’s other assets will continue to lend a helping hand as streaming wars intensify.
Apple Inc. (NASDAQ:AAPL) has already launched its streaming service, while the U.S. largest telecom operator, AT&T Inc (NYSE:T) is getting its product ready for the May 2020 launch.
Earlier this month, Disney reported better-than-expected fourth-quarter results, boosted by the company’s film studio and its theme parks and consumer product division. Fourth-quarter earnings, while down from a year earlier, came in at $1.07 a share, beating the $0.95 average of analysts’ estimates. Revenue soared 34% to $19.1 billion as result of the $71 billion acquisition of 21st Century Fox assets, which closed in March.
Bottom Line
If you need to pick a winner in this simmering streaming battle, Disney is a solid candidate to bet on. It has vast content assets that other players lack and probably will require years to build. In addition, it has other businesses to provide cash flows while costs escalate to undertake this massive project. For these reasons, we have been recommending buying Disney stock, which, in our view, is well-positioned to grab the market share from Netflix.