Disney (DIS) has endured one of the worst slates of headwinds in recent memory, but it could emerge on the other side in a position of strength. Many catalysts, including the reopening of parks and resorts, can act as a boon for the stock over the coming months. However, it’s Disney+ and a shift of strategy that could help it take meaningful share away from rival Netflix (NFLX) amid its subscriber bleed. I am bullish on Disney stock.
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Indeed, the video-streaming on demand (SVOD) market has been under pressure of late, with a slowing economy and a tightening consumer. Netflix recently clocked in some better-than-feared results that saw it shed nearly 1 million subscribers. Netflix stock rallied as investors feared subscriber losses closer to 2 million.
Though Netflix’s subscriber free-fall signals that the streaming market is destined for sub-optimal returns (content spending is so incredibly expensive and is not without its fair share of risk), I’d argue that Netflix’s shortfall represents an opportunity for its peers.
The streaming wars are far from over. At this juncture, it appears that Disney is en route to becoming the new king of SVOD. It’s not just a large quantity of quality video content that could help Disney leap-frog Netflix as the going gets tough.
Disney has learned quite a bit from its entrance into the streaming markets, and it could shake up the model in an effort to attract new users and keep them subscribed. Indeed, the image below shows how Disney’s streaming platforms keep seeing an increase in unique visitors.
Interestingly, of all the streamers, Hulu saw the strongest growth in website traffic on a year-over-year basis during June 2022.
Is Disney+ More Recession-Resilient than the Rest?
There’s a lot of competition for subscriber dollars these days. As we approach an economic slowdown or downturn, the subscription economy could witness what I’ll refer to as “the Great Cancellation.” Consumers probably won’t cancel everything, but they will be more selective. Arguably, Disney+ stands out as a must-have service. It has a deep library of content and is about to get much better, with a pipeline full of intriguing releases.
Recently, Disney+ added two R-rated titles in “Deadpool” and “Logan” to its lineup. Believe it or not, Disney+ subscribers aren’t all children. With many older audiences engaged, Disney may have an opportunity to kick its growth into high drive by including more R-rated content across its Marvel universes.
Disney+’s Hotstar service is full of R-rated films, and it’s been a hit among viewers. Given the popularity of mature Marvel films, one has to think that Disney may be in a position to better cater to its many older viewers.
Disney+ Can Out-Innovate Netflix
When it comes to streaming, content remains king. However, there are other areas that can help streamers gain a leg up on the competition. Most notably, innovative technologies and new streaming models. Indeed, Disney is no stranger to trying new things with its streaming platform. During the COVID-19 pandemic, Disney tested the waters with Premiere Access, allowing users to view theatrical films from their own homes.
As the American economy reopened, the company pulled the brakes on the initiative. The cinemas are starting to fill their seats with bums again, making Premiere Access likely a short-lived endeavor with mixed success.
Looking ahead, Disney could test out new models to improve stickiness. Ultra-long TV series with many episodes trickled in weekly may be the future of streaming. By disallowing binging, streamers can combat the “flip-flopping” across streaming platforms and keep subscribers subscribed.
Disney is already doing a fantastic job of spreading its quality content over time. Its pipeline is always full, and there are usually intriguing new launches to look forward to in any given month.
As Netflix and other streamers look to introduce ad-supported tiers, Disney will be following suit. Disney’s ad-based service promises fewer ads than Hulu’s ad-based service. As streaming embraces (targeted) ads, we may very well see firms like Disney taking away ad business from social-media firms.
With exceptional algorithms, I’d look for Disney to really thrive as the streaming wars make an interesting pivot.
Wall Street’s Take on Disney
Turning to Wall Street, Disney has a Moderate Buy consensus rating based on 17 Buys and eight Holds assigned in the past three months. The average Disney price target of $137.35 implies 33.3% upside potential. Analyst price targets range from a low of $110.00 per share to a high of $176.00 per share.
The Bottom Line: Disney will Likely become King
Disney+ has a lot going for it, as ad-based tiers become a preferred option among consumers seeking to save a bit of cash. At this pace, I expect Disney+ will be crowned the new king of streaming, as early as a few years from now.
