Disney’s (NYSE:DIS) streaming service has got off to a flying start. In just five months since its launch in the U.S., Disney plus has amassed a user base of 50 million people. This includes the 22 million it has added since its February earnings call. The news comes after an international expansion that the British Empire would have been proud of. Since its earnings call in February, the swashbuckling streaming service has docked at ports such as the UK, Ireland, Germany, Italy, Spain, Austria, Switzerland, and India, the latter of which represented 8 million new subscribers in just a week since its launch.
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The service has accumulated almost one-third of Netflix’s (NASDAQ:NFLX) user base in less than half a year, laying down a marker in the ongoing streaming wars. Competitors like Google’s (NASDAQ:GOOG) Youtube, Amazon (NASDAQ:AMZN) Prime, and Apple (NASDAQ:AAPL) TV have all seen a significant increase in the number of minutes streamed as people are forced indoors for the foreseeable future. It’s almost a perfect storm for Disney+, which has released titles such as ‘Frozen 2’ and ‘Onward’ much sooner than originally planned to entice new subscribers. As so many parents have found themselves now working from home, this level of distraction will be a welcome boon. Some shrewd marketing from the house of mouse.
Despite the recent success of Disney+, I don’t think new CEO Bob Chapek is jumping for joy right now, and not just because his colleagues have been calling him Bob 2 since his promotion. While Disney+ is growing like gangbusters, the rest of Disney’s revenue streams are drying up.
Disney’s Revenue Problems
There’s a title you didn’t think you’d see two months ago.
Disney revenue streams can be categorized into 4 segments:
- Parks, Experiences, and Products: 37% of revenue in 2019
- Media Networks: 35% of revenue in 2019
- Studio Entertainment: 16% of revenue in 2019
- Direct-to-Consumer and International: 12% of revenue in 2019
Let’s take a look at the current state of its Parks and movie business.
Parks, Experiences and Products
A stalwart of the house of mouse for many years, this sector is made up of its theme parks, resorts, as well as a Disney-themed cruise line. It accounted for more than $26 billion in revenue last year and is essentially at a complete stand-still.
It has the longest road to recovery of any of Disney’s revenue streams. Discretionary travel will take a long time to return to pre-pandemic levels and it’s not the locals who visit Disney’s portfolio of international parks and resorts, not to mention the permanent damage the coronavirus has done to the cruise line industry. Just look at the thumping Royal Caribbean (NYSE:RCL) and Carnival Cruises (NYSE:CCL) have taken recently. There is a fair argument to be made that this segment of Disney’s operations may never fully recover in terms of demand.
Another one of Disney’s operations which has essentially found itself at an impasse. Disney’s movie business has been moving from strength to strength in recent years thanks to the success of the Marvel franchise and the resurgence of the Star Wars movies. It accounted for a whopping 38% of all domestic cinema-going in 2019. Unfortunately, cinemas across the globe will be closed for the foreseeable future, meaning Disney’s dominance has been suspended until the game restarts. Marketing costs and halts to production across the globe will hurt its wallet in the short-term, however, there is no reason to believe that its reign won’t continue once the popcorn machines start back up again.
Disney’s long-term outlook
While these new Disney+ figures are great, I can’t help but get the feeling that they are a distraction, as Disney Executives look to occupy investors with something shiny so we don’t direct our eyes to the dumpster fire burning behind them. With over half of its revenue coming to a complete halt and no one sure of when it will start again, they will need more than a growing streaming service to plug the hole in the ship.
It’s tempting to think that, because we are in a temporary situation, things will revert back to what they were before the pandemic. This is not the case, and as investors, we should be wary of this. There will be some long-term casualties from this crisis. We are staring down the barrel of a global recession that will have an impact on the average American for years to come. Yes Disney’s parks will reopen, cinemas will once again start charging extortionate prices for snacks, and sports will return to our screens, but will there be the same demand for all these things once they do?
Disney’s products revolve around discretionary spending and travel, something that may be out of reach for many people in the future. While many may look at the company’s balance sheet and eye up a quick recovery, I would highly recommend digging a bit deeper into their future outlook before investing. While I believe it will absolutely recover recently lost gains, the road to recovery may be longer and more arduous than people may think.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.