Disney DIS stock slipped Monday amid a strong start to the week for all three major U.S. indexes, which included big gains from Boeing BA and Tesla TLSA. Disney dipped after its newest Star Wars movie posted disappointing opening-weekend box office results.
DIS shares fell Monday based on lofty expectations for the entertainment conglomerate. But even the recent box office miss shows how strong Disney is as it prepares to challenge Netflix NFLX, Amazon AMZN, Apple AAPL, and others in the streaming TV age.
Star Wars
Star Wars: The Rise of Skywalker is the last of Disney’s new Star Wars trilogy that rebooted the historic Sci-Fi franchise. The movie pulled in $175.5 million in its first three days. This came in below the $200 million that theater owners had hoped and over 20% below the first two movies in the series. Still, the latest Star Wars movie was the third-largest December debut ever, behind only—you guessed it—Star Wars: The Force Awakens & The Last Jedi.
With this in mind, Star Wars: The Rise of Skywalker will likely end up grossing over $1 billion worldwide. Overall, only 45 movies have ever grossed more than $1 billion, and Disney has already released six different billion-dollar movies in 2019 alone, including Avengers: Endgame—which is now the highest-grossing movie ever.
Disney’s Pitch
Disney has become a box office juggernaut. The firm has been able to do this through key acquisitions, which go all the way back to Pixar in 2006. Disney then acquired Marvel and Lucasfilm, in 2009 and 2012, respectively, to expand its portfolio. More recently, DIS paid $71 million to acquire key 21st Century Fox assets.
The last decade-plus all led up to the November 12 launch of Disney+. Disney’s new streaming TV service costs $6.99 per month and grants users access to old and new content from its namesake brand, Pixar, Marvel, Star Wars, National Geographic, and much more, bolstered by its Fox deal. The company also offers a bundle of Disney+, ESPN+, and ad-supported Hulu for $12.99 a month—the same price as Netflix’s Standard plan and less the $15.99 per month it chargers for its Premium offering.
Disney’s price points are compelling in a crowded market, especially given its substantial content library. It plans to roll out new movies and shows from Disney, Pixar, Star Wars, and Marvel all on Disney+, and the streaming TV service will be the exclusive streaming home for all of the company’s movies and TV shows going forward.
Netflix was, not too long ago, home to many of Disney’s box office hits. NFLX has and will spend billions of dollars to create its own original content as DIS, Comcast CMCSA, AT&T T, and others all pull content for their own streaming platforms. And some of the early numbers suggest that Disney+ has been a hit, driven by shows such as The Mandalorian.
Disney+ has grabbed 24 million users in the U.S. since its November launch, according to a new report from the analytics firm Cowen & Co. This figure topped some early Wall Street estimates, but does include people who got the service for free through Verizon’s VZ offerings. Still, Cowen reported that Netflix lost 1.1 million subscribers, who dropped the service to join to Disney+ during this stretch.
Other Fundamentals
Investors should note that Netflix is still the king of streaming, having last reported over 158 million paid subscribers around the world. But NFLX fell short of its own subscriber growth figures in back to back periods and Wall Street is clearly nervous about Netflix over the long haul.
Disney stock is up 34% in 2019, to outpace the S&P 500’s roughly 27% climb and NFLX’s 26%. Shares of DIS have also climbed 12% in the last 12 weeks but have moved sideways in the past month to rest roughly 6% off its 52-week highs, which could give the stock some room to run.
The climb has somewhat stretched Disney’s valuation picture. But the company has proven over the last year that it is ready for the next entertainment age, which also includes its first stand-alone ESPN-branded streaming service to help attract cord cutters.
Aside from its new streaming unit, Disney also makes money from cable and broadcast TV, the box office, and its “Parks, Experiences, and Products” division. Disney’s diversification, along with a quarterly dividend, help make CEO Robert Iger’s company look more attractive.
Bottom Line
Disney reported its Q4 fiscal 2019 results in early November. The firm’s full-year sales surged 17% to $69.57 billion, driven by its Fox deal and its Hulu ownership, which were included for the first time in Q3.
Looking ahead, Disney’s fiscal 2020 revenue is projected to jump by a similar 17.1% to $81.50 billion, with 2021 excepted to come in 7.4% higher at $87.51 billion. Meanwhile, Disney’s streaming transformation has not been cheap.
DIS is projected to see its adjusted full-year earnings fall by 7% in 2020, after it slipped 19% in 2019. But Disney’s earnings growth is poised to return in a big way in 2021, with it expected to surge roughly 20% above our current-year estimate.
Disney is currently a Zacks Rank #3 (Hold) that appears to be worth considering as a longer-term investment in the streaming TV age because its diverse offerings, which includes live sports and name-brand content, might stand out in a crowded market for years, if not decades to come.
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