Stock of the week: Disney & their media metaverse

Disney’s latest earnings were well-received by the market. There had been some trepidation around the streaming side of the business after Netflix was punished for their slowing subscriber growth.

No such problems for Disney though! On the three main metrics, all were strong beats and firmly above expectations

• Earnings per share: $1.06 adj. vs 63 cents expected
• Revenue: $21.82 billion vs $20.91 billion expected
• Disney+ total subscriptions: 129.8 million vs 125.75 million expected

Heading into the release, Disney’s share price was hovering around $146 at market close. The following day it gapped higher and opened north of $155. After a brief pullback, buyers have stepped in again and it’s now trading ~$156.

However, Disney stock is still trading at a heavy discount from the $202 high reached in 2021. Recent price action could definitely be interpreted as positive, and key technical areas lie ahead at $159, $163 and the big one at $169.

Disney catalysts

First up, the diversification of the business. Many of the pandemic “stay at home” winners have seen their value drop sharply as the economic focus turns more to services and leisure, especially travel.

Disney has the perfect “heads I win, tails I win too” position here. It’s not hard to imagine the draw of Disney theme parks and attractions after two years of lockdowns and travel restrictions.

Even if people choose not to travel, the diversity of the Disney+ content library could give them the edge in the streaming wars.

From their website:

• The stories you love: Your favourite classics, new releases, and Originals from Disney+, Hulu, and ESPN+.
• Endless options: With movies, TV shows, and live sports, there's something for everyone. Anytime, on the go.

Yes it’s marketing, but it also highlights Disney’s business moat. The variety that Disney offers is hard to emulate. Huge franchises such as Marvel & Star Wars, the endless library of children’s movies and programmes, plus sports packages all drive subscriber growth.

And, perhaps more importantly… Subscriber retention.

Deloitte highlighted the “prevalence of ‘hit and run’ subscribers” in a report earlier this year, and estimated that “providers can spend US$200 per year on marketing to acquire a single subscriber.”

Subscribers for show, Retention for dough?

Competitors such as Netflix might be tempted into sports streaming or even ad-supported models to compete…

On top of this, Disney has now appointed Mike White as Senior VP of next generation storytelling and consumer experiences…

CEO Chapek said:

“For nearly 100 years, our company has defined and re-defined entertainment by leveraging technology to bring stories to life in deeper, more impactful ways,”

“Today, we have an opportunity to connect those universes and create an entirely new paradigm for how audiences experience and engage with our stories,”

“This is the so-called metaverse, which I believe is the next great storytelling frontier and the perfect place to pursue our strategic pillars of Storytelling Excellence, Innovation, and Audience Focus.”

And this is the uphill climb that Disney’s streaming competitors face. Sure, they might know streaming, but can they outcompete Disney in storytelling, established branding, and 100 years of nostalgia?

Not investment advice. Past performance does not guarantee or predict future performance.