Market Overview

Disney Is Now Officially Netflix's Biggest Problem And Yet Another Friend To Roku

Disney Is Now Officially Netflix's Biggest Problem And Yet Another Friend To Roku

Along with aggressive pricing, beyond popular content for all ages and a massive campaign, Walt Disney Co (NYSE: DIS) wasted no time as Disney Plus has exceeded 28 million subscribers. For all those who are not impressed, thinking Netflix Inc (NASDAQ: NFLX) has 167 million, just remember that Netflix has been around for 12 years now whereas Disney Plus is the new kid on the block for only less than three months.

Disney beat on the top and bottom lines in its fiscal first-quarter that ended in December have caused shares to rise on Tuesday. But Disney still cannot afford to celebrate victory, its stock has fallen slightly since earnings have released and the company's stock is about even for the year so far, with streaming wars just heating up.

Earnings Results

Earnings per share amounted to $1.53 per share whereas Wall Street expected $1.44 per share. Revenue also topped estimates of $20.79 billion with $20.86 billion. But more importantly, analysts expected the company to report 20 to 25 million subscribers but the Disney+ streaming service achieved 26.5 million paid subscribers by the end of the quarter and 28.6 million as of Monday.

Streaming Wars Are Far From Over, They Have Just Begun!

The ability to connect with the audience is Disney's main strength. Along with Pixar, Marvel, and of course, Star Wars. Making use of its own jewels in-store instead of licensing them out to other platforms has apparently paid off. But Netflix isn't going anywhere as its recent quarterly report shows that it continues to add subscribers with most of those are outside of the U.S., where growth has slowed significantly.

Price increase is surely one of the reason for this slow-down, but the once-leader spent a record $15 billion last year on licensing and creating original content in 2019, far more than any other service. But Disney also hasn't shied away from such investments as the legendary company reported a $689 million loss on $4 billion in revenue for all of its streaming services, including Hulu and ESPN+.

Someone, Other Than The Audience (Read: Subscribers), Is Benefiting From This War…

Disney's 28.6 million subscribers have more than benefited the often misunderstood Roku (NASDAQ: ROKU), who simply put, rocks. The fast-growing platform has thrived and not only with Disney but from all this competition in general. Don't forget that there is also Apple Inc (NASDAQ: AAPL) whose stock rose early Wednesday along with, Inc. (NASDAQ: AMZN) to think of, just to name a few! Streaming is just getting big, and Roku is there to ride the wave with both Disney and Netflix – what a great win-win is in store, for Roku at least!

Disney's Losses Are To Deepen

Direct-to-consumer revenue, including streaming under its umbrella, more than quadrupled to $4 billion. However, operating loss went the other way, increasing from $136 million to $693 million, speaking of magnitude. Capital spending at the segment more than quadrupled to $109 million.

Moreover, the CFO announced that operating losses at the direct-to-consumer segment are expected to deepen to $900 million in the next quarter due to consolidation of Hulu, among other investments. And Coronavirus has hit theme parks so closures in Shanghai's and Hong Kong's Disneyland will also take its toll on Q2. So that's probably the reason behind the 2 percent decline in stock… and a stock that has already been struggling.

Despite solid earnings, they did decline about 17% year-over-year and should come in below 2019's total this year. And not even Disney itself is expecting profitability for Disney+ anytime soon.

The Long-Term Strategy Is What Counts- And Disney Has History Behind It

It is the legacy that highlights the primary threat Disney+ presents to its streaming competitors. The combination of a hugely popular content library, aggressive pricing, and a growing subscriber base mean that the battle to be and stay on top is going to get much more difficult.

These are not called the streaming wars for nothing and even Disney is not too confident as it did not update its guidance for the service as the company previously forecasted between 60 million and 90 million subscribers by the end of its 2024 fiscal year. On the bright side, Disney+ subscriber number topped the company's own highest expectations, Disney+ will have its India debut in March and Hulu is also planned to go international. Disney slows but it still grows yet Netflix can still fight back.

No can argue that Disney sure has legacy and a lot going in its favor but success is promised to no one. Well, Roku is the only one who is as close to it as it gets – and its position is surely as good as it gets!

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Image by Andrés Rodríguez from Pixabay


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