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Disney (DIS) Benefits From Strong Demand for Disney+ Service

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Disney’s (DIS - Free Report) streaming service Disney+, which was launched on Nov 12, 2019, reportedly continues to witness strong user growth two months after its debut.

Per Sensor Tower data, the streaming service’s mobile app — which has been downloaded nearly 41 million times across the App Store and Google Play — witnessed an estimated $97.2 million in user spending.

The company itself announced 10 million Disney+ sign-ups a day after its debut. The media giant will give its next subscriber update with first-quarter earnings on Feb 4, 2020.

Such positive developments were the reasons behind acceleration in Disney’s stock price. Following the news, the company’s stock price rose 9.2% and closed at $145.20 on Jan 14, 2020.

Notably, except Apple (AAPL - Free Report) , Disney has outperformed its streaming competitors Netflix (NFLX - Free Report) , Amazon (AMZN - Free Report) and HBO parent AT&T.



 

Strong Content Portfolio to Aid Disney+ Growth

The streaming service’s user growth was driven by its strong portfolio of offerings. Disney+ has approximately 500 movies and 700 episodes, including content from Disney, Pixar, Marvel, Lucasfilm, and National Geographic.

Moreover, Disney’s acquisition of 20th Century Fox in March 2019 gave it access to the studio’s portfolio of movies, which was a valuable addition to Disney+ offerings.

Markedly, the company is spending heavily on developing new original content that is expected to drive subscriber growth for the streaming service.

Notably, Disney spent around $100 million to make The Mandalorian, which was one of the most in-demand shows in 2019, per Parrot Analytics data.

The company is also reportedly spending $25 million per episode on the shows based on the hugely popular Marvel universe, which includes The Falcon and the Winter Soldier, Loki and Hawkeye, among others.

However, the huge investment is expected to hurt profitability. Management expects the Direct-to-Consumer (DTC) & International Interactive Media segment to report roughly $800 million in operating losses for the first quarter.

Notably, in fourth-quarter fiscal 2019 DTC & International segment operating loss widened to $740 million from $340 million in the year-ago quarter.

Strong Competitive Position

The service’s strong portfolio makes it well poised to counter competition in the highly competitive video streaming space, which, per allied market research data, is expected to witness CAGR of 18.3% from 2019 to 2026.

Moreover, the service’s lower subscription cost of $6.99 per month gives it an edge over Netflix and Amazon prime video, with their standard subscription costs being $12.99 and $8.99, respectively.

Disney+ also has a higher customer satisfaction score of 76% than Netflix’s 74% and prime video’s 66%. The figure was also up from 48% for AppleTV+, per YouGov data, quoted by investors.com.

Notably, Disney expects Disney+ to be profitable within fiscal 2024 and amass 60-90 million subscribers worldwide.

Zacks Rank

Disney currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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