The Potential for Disney Stock Begins and Ends with Disney+
Disney (NYSE:DIS) remains in wait-and-see mode. Expectations regarding most of its divisions appear baked into the price of Disney stock. The move higher DIS saw in the first half of the decade came to an end when customers began to drop pay TV services.
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Hence, resumption of the growth in DIS stock hinges on the success of the successors to its declining cable channels, especially Disney+.
The struggles for Disney stock began in 2015 when the Disney Channel and ESPN saw lower viewership as consumers transitioned to must cheaper streaming services. The company finally answered by announcing upcoming launches for both ESPN+ and Disney+.
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While that has fueled some level of optimism, Disney has done little since its channels lost viewers. It will continue to do little until those viewers come back through the streaming services.
A Closer Look at Disney Stock
Little else offers little long-term meaning to the Burbank, California-based media giant. The fact that DIS beat its mediocre earnings expectations holds little significance. We know that the Parks, Experiences, and Theme Parks division remains the fastest-growing part of the company.
Also, anyone who casually observes the entertainment industry will understand the struggles with both Lucasfilm and ABC. Given the stagnation that Disney has faced amidst that news implies that investors have already priced these realities into DIS stock.
Financials also offer little incentive to break Disney stock out of its range. DIS trades at 15.2 times forward earnings. Analysts forecast no profit growth for 2019, and only a 3.8% increase in 2020. By themselves, such metrics will motivate neither buying nor selling of DIS stock.
Disney+ Is the key
The only thing I can see breaking this holding pattern is a part of its Direct-to-Consumer and International division, specifically Disney+. Most already regard Disney as holding the most popular content library. The acquisition of media assets from Twenty-First Century Fox (NASDAQ:FOXA, NASDAQ:FOX) further strengthened its dominance regarding content.
If the launch of ESPN+ serves as an indicator, Disney+ could turn into the catalyst DIS needs to break out of its range. The numbers with ESPN+ show promise. ESPN+ launched in 2018. Already, the service boasts over two million subscribers, double the number from five months ago.
While streaming remains a money loser for Disney, this massive subscriber growth will likely turn those numbers around in time. Moreover, market leadership would empower Disney to raise the costs of its services. ESPN+ subscribers pay only $5 per month right now.
I think this bodes well for the launch of Disney+. Due to the content library, I see Disney+ as an almost instant market leader once it launches. Further, the launch deals an immediate blow to Netflix (NASDAQ:NFLX) who will no longer show Disney content at that point.
Content should also help Disney+ outperform Amazon’s (NASDAQ:AMZN) Prime Video and HBO Now from AT&T (NYSE:T). Still, it is handing defeat to Netflix that could create the anticipation needed to bring buyers back into DIS.
The Bottom Line on Disney Stock
Much like the decline of the Disney channel hampered DIS, a successful Disney+ launch could resume the growth of DIS. Investors have priced both the successes and challenges in most of Disney’s divisions into the price of DIS stock.
Moreover, both the price-to-earnings ratio and the expected profit growth stand at steady, but unimpressive levels.
Hence, we have to assume Disney+ is the defining factor. Early numbers from ESPN+ imply Disney can achieve impressive growth numbers in streaming. Furthermore, the Disney content library could make Disney+ the most popular streaming service within a short time.
Disney+ launches in late 2019. Once the company announces the specific launch date, I recommend opening a position in Disney stock before that time. Even if profitability takes some time, high growth numbers could propel DIS out of its range. Once that occurs, the equity can finally resume the growth it enjoyed until 2015.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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