Disney’s Ride to Space Mountain

A quick look at how a 97-year old company is staying relevant

Disney’s stock reached an all-time high of $179.45 on Friday after their 3-hour long Investor Day. Here’s a quick look at the star attraction - Disney+ and how it’s driving investors to back this 97 year old company.

Disney’s had an edge for a long time with their strong intellectual property and ability to churn out movies from Pixar, Marvel and Lucas Studios. And now, the company may remain unrivalled as they bring this niche to the streaming industry. And it’s not just the kids who love Disney. More than 50% of the subscriber base is adults without kids. When you throw in the likes of Hulu and ESPN, they’ve got a corner of the market reserved for them.

Subscriber Base Soars

Disney’s ambitious plans include reaching between 300 to 350 million subscribers by Y2024 across it’s three platforms, with the majority share of 230 to 260million coming from Disney+ alone.

To put this in context, Netflix has close 200 million subscribers. But, what’s impressive is that Disney+ has already reached the 86.8 million mark, in just about a year, despite having quite the niche offering. What’s even more impressive is that they’d projected 60-90million users by Y2024, when they launched in November 2019.

The streaming business doesn’t have to be competitive. Just because I have Netflix, doesn’t mean I won’t subscribe to Disney. At these low rates, customer’s won’t mind paying for both. So it’s not like they will cannibalize someone else’s market share. In fact, an existing Netflix user is more likely to subscribe just for the variety.

A Quick Look at the Numbers

Price Point

With Netflix increasing their subscription cost by $1 for their Standard and $2 for their premium, Disney’s decided to follow suit, increasing their Plus subscription from $6.99 to $7.99, still a far cry from Netflix.

With a price point offering of $12.99 for the entire bundle - Disney+, ESPN, and Hulu - the subscription is a steal for families across the board, particularly when compared to Netflix’s $14 for the Standard and $18 for the Premium.

Operating Results

As of fourth quarter Y2020 results, their revenues from Direct-to-Consumer was $16billion increasing 81% over the previous year. But, the company is still recovering from their losses from the segment which were $2.8billion, incurred in part due to high roll-out costs for Disney+ and a reduction in their international channels.

Projections

The average revenue per paid subscriber for Disney+ was about $4.5/month. Assuming this increases to $8/month with the bundle offer, at 300million subscribers the gross revenues could potentially reach $28.8billion by Y2024.

The company’s total content expense guidance is $14B to $16B. Conservatively, the company could definitely reach its target of making profits by Y2024. Although the guidance also notes that losses will peak in Y2020 - Y2022 for Disney Plus.

Going Global

The company has already teamed up with providers from around the world to take Disney+ global - including high growth areas like Latin America and India.

Disney is also launching Star and Star+ internationally to capture the general entertainment market in Europe, Canada, Australia and New Zealand and Singapore, and will include programming from ABC, FX, Freeform, Searchlight, and 20th Century Studios, not to mention a team up with NatGeo and the offering of Live TV.

There’s just too much going on, and with this impressive offering it will be a challenge not gain market share.

None of this means Disney’s backing down from what they do best - theater attractions and theme parks. They company made it clear that streaming and theaters don’t need to compete. Going to the movies will always be a thing; not to mention their theme parks when life returns to normal.

The company has clearly proven that it can build on the strength of it’s brand and I won’t be surprised if they reach their intended target ahead of schedule.

What I love about Disney is how the brand has managed to stay relevant. It hasn’t always been a smooth ride but that just means that the company knows how to turn around a bad situation. It’s been there, done that and definitely has the T-shirt.

I’ve been long Disney for a while and it has certainly paid off.