Disney on Demand

Snow White, The Beauty and the Beast, and The Lion King are on everyone’s list of favorite movies of all-time and now can be watched on Disney’s new on-line streaming platform, Disney+. For $6.99 a month, users can enjoy their favorite Disney movies from their childhood and well as other content owned by the Disney Empire.  Now the real question, how will this impact the valuation of Disney?

Disney on Demand

Disney was able to pull off this streaming service through a series of acquisitions. The two most significant acquisitions include: the purchase of BAMTech, which ultimately provided the technology and capabilities to offer the streaming service to users, and the acquisition of 21st Century Fox which bolstered the content that would be provided. With this strategic plan, Disney reported that more than 10 million people signed up for the service on opening day. It will be very interesting from a valuation standpoint to see how this new service will impact Disney’s stock in the long-term.

Benefits > Risks?

The name of the game in determining value is the interaction between benefit and risk. Time will tell if the future benefits will outweigh some of the following risks that Disney faces with its entrance into the streaming wars.

  • Consistent membership – as stated earlier, over 10 million people signed up on opening day. However, not all 10 million people are paying customers. Will the people who are taking advantage of the free trial keep the subscription when the free trial ends? Also, can Disney+ keep active users interested with the content that they are providing?
  • Heavy competition – Netflix is arguable Disney+’s biggest competition. On November 13, 2019, it was reported that Netflix closed a deal with Nickelodeon. With this deal, Netflix will offer subscribers their favorite Nickelodeon shows as well as the license to produce original content based off of characters from Nickelodeon’s classics. Netflix has been the market leader in content streaming for some time, but is it possible for Disney to knock Netflix from the top spot?

Valuation & Past Performance

The chart below shows how the value of Disney stocked fared from the announcement of Disney stock versus where it stood on release date, which gives us some insight as to how the market is viewing the opportunity that Disney has and how the risks outline above impact the Company’s valuation.

EventDateStock Price (DIS)
Day before announcement of plan for streaming service8/7/17$106.35
Day announced8/18/17$106.18
Day after announcement8/19/17$102.83
Release date of streaming11/12/19$138.58

As investors get more information on subscribers, profit margins, and growth from Disney’s rollout of Disney+, it is likely that the Company’s valuation will be impact significantly by these metrics on a quarterly basis. How the Company handles the intense competition that is surely to heat up in the future in the entertainment streaming market is something that we will be keeping an eye on.