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Business

Disney: New Streaming Service Can Turn Valuation – Walt Disney Company (NYSE: DIS)




From TV to theme parks, from movies to toys, Disney's entertainment empire spans virtually all imaginable media where content can be consumed. Thus, it was just a matter of time before it made a precedence to the latest and hottest media content consumption platform: streaming services.

11. April + Disney was unveiled too much fanfare. The Advent of Disney + raises new questions about the venerable future of the company. While the service was long expected, its potential impact on Disney's business continues.

Do you want to build a streaming service?

Disney's streaming intentions have been well known for some time, as Epsilon Theory's Rusty Guinn noted in a recent article:

It was certainly not because people didn't know about Disney's flowing plans. Disney has been very transparent about almost every detail throughout the development. We have known that the service was in planning for years. We knew the name in November. We knew about the massive investment in proprietary platform content, the new VP leader in the group, and the details of some of the individual programs planned in January. In the LexisNexis Newsdesk database, between March 31, 2018 and March 31, 2019, there were more than 48,400 news articles, major blogs, Disney press releases and streaming. "

Despite the long lead times and the general lack of surprises about Disney +, Disney shares jumped higher in the wake of the official rejection. The shares are now trading 12% higher than it was the day before the advent of Disney +. The market has added more than $ 20 billion to the company's valuation almost overnight

So why did the market react as if this was a surprise?

Just can't wait to be king

Disney + announcement was a long time and widely expected, Disney received a number of analyst upgrades during the advertising, and general outlines of the service were well understood before CEO Bob Iger pulled back the curtain .

With so much familiarity, this was barely Some binary investment event, one would think the market reaction would be positive, surely, but ebullience once again many surprised. Guinn's answer to this apparent conundrum: the price.

At $ 6.99 a month, Disney + will undercut many other streaming services. It is also in stark contrast to Netflix (NFLX), the original and largest streaming platform, which has increased prices in an effort to plug the still-reputed financial gap.

A low premium score makes sense as part of an effort to build a broad subscriber base, and no one expects the price to remain so low forever. But the chosen price point has further significance. There is definitely no surplus maximization, and Disney has no doubt about hunting up prices in the end.

But putting the first prize for Disney + so low indicates that Disney is here to compete for the streaming crown, not just being a runner. It seems that Disney is throwing down the giant of Netflix.

A whole new story

Disney + is far more than a content platform. It's not just another medium where you can see and enjoy Disney branded content. Rather, it represents a fundamental shift in Disney's story as a company. Guinn's latest article proves an excellent crystallization of this point:

Disney creates a powerful story that it will take market share. Because Disney creates common knowledge that it will dominate streaming. Because Disney wants you to know that everyone else knows it's now a growth stock – not in that part of the Russell 1000 growth index, but in the put-ons-in-your-basket with Netflix, Nvidia and Amazon sense. "

In other words, Disney + is set to shape the Disney company, and transform it from a company that is valued as a multimedia profit-spinning machine with an unmatched intellectual property portfolio to a valued as an ultra -Growth Tech store. Disney can do this reassessment pin, it can see massive revaluation on the upside like what Netflix is ​​currently experiencing.

The Amazing World of Profits

Some analysts and commentators have already fumbled with the idea of ​​" Disney as a service "but most people fail to understand how much of an impact such a narrative change can have on the stock price.

This is where the comparison with Netflix becomes important. The current king of streaming is valued at nearly 170 billions of dollars, a valuation built entirely on future expectations of monumental growth, despite price increases and only limited competition from a few startup rival streaming services, Netflix has still not been able to get out of the red.

However, Disney has a large profitable empire, as well as owning the most valuable entertainment-related IP in the world. It can afford to subsidize streaming service with relatively ease if it will. But its enormous price strength proved time and again across platforms, may well mean that it does not have to absorb losses from Disney + to compete for streaming dominance – not too long anyway.

Investors Eye View

At $ 233.36 per share, Disney has a market capitalization of nearly $ 240 billion and trades for just over 18 times earnings. It's not exactly cheap, but it's not terribly expensive either.

But if the new story takes hold, today's valuation may soon look very cheap indeed. Let's forget that Netflix actually outdone Disney, albeit briefly, to be the most valuable media company in the United States.

If Disney can catch some of the tech material dust that has lifted Netflix to dizzying heights, it might end up getting a radical reassessment from the market. If Disney can make a credible game for the streaming crown, whether it breaks Netflix in the process or not, the company may well find itself receiving far more generous price targets.

Notice: I / We have no positions in any shares mentioned, and no plans to start any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.



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