Despite the odds stacked against its major theme parks company, Disney (NYSE: DIS) had a pretty good 2020 – not least thanks to the direct-to-consumer streaming TV segment. On December 2, Mickey’s magical empire had 137 million streaming worldwide subscribers, an incredible 17 million more than just two months earlier, at the end of Disney’s fiscal 2020. With strong momentum just over a year after Disney + stormed the entertainment world , the company is on the accelerator and ready for a sample in 2021 – for its business and for its stock.
Disney + takes effect Beauty and the Beast mode
It has become clear that Disney sees streaming TV as a central part of its entertainment business now and in the future after a pandemic. On the company’s 2020 investor day in mid-December, CEO Bob Chapek revealed that Disney + had 86.8 million subscribers on December 2 alone, up from 73.7 million in early October.
About 30% of those Disney + subscribers are in India, where the company debuted its eponymous service as Disney + Hotstar. The big jump in signups can also be attributed to season two of The Mandalorian stoke in November. Based on the massive success of that one show, Disney is poised to roll out more of the goods consumers crave.
Image Source: Getty Images.
In the coming years, Disney + will release 10 new Marvel superheroes and Star Wars series each, as well as 30 other Disney and Pixar series and feature films. Disney isn’t ready to fully beat the global box office just yet (AT&T‘s (NYSE: T) Warner Media recently announced that it will be sending all of its 2021 movies to HBO Max simultaneously with a theatrical release), but it left the door open on doing so. As it did with the live-action version of Mulan, the film Raya and the last dragon debuts simultaneously on Disney + (via a premium access purchase) and theaters in March 2021.
Disney + will also launch in Eastern Europe, South Korea and Hong Kong in 2021, and the general Star TV entertainment service will also expand outside the US in the coming year. In some markets, such as Europe, Star is launched within Disney + (increasing the monthly price by two euros per month). In other markets, such as Latin America, Star becomes Star + and is offered as a standalone service or bundled with Disney +. Speaking of Latin America, Star + will go live in June and will feature live sporting events such as football.
Disney had a number of other major announcements – all centered around its burgeoning streaming ambitions. A new agreement to distribute Disney + Comcast‘s (NASDAQ: CMCSA) The Xfinity X1 Set-Top Box Will Open The Door To 20 Million More Households In The United States; Hulu (which had 38.8 million subscribers on Dec. 2) with no ads for an additional $ 6 per month will be an option for the Disney streaming bundle family; FX, acquired from Fox, will also establish its exclusive home on Hulu to expand its library of content there; and ESPN + (11.5 million subscribers) content will also be available in the Hulu app soon.
Simply put, the way households get some entertainment time has quickly shifted to home TV, and Disney seems ready to pull out all the stops to capitalize.
Lots of growth ahead – and a hopeful return from travel
Of course, all this new content and expansion is going to cost some money. The direct-to-consumer segment generated an operating loss of $ 2.81 billion on sales of $ 17.0 billion in 2020. The losses are expected to peak in 2021 as Disney ramps up spending on all those new TV projects. However, Disney + is expected to start operating at a profit by 2024 – at which point Disney +, Hulu and ESPN + are expected to have a total of 300 million to 350 million subscribers worldwide. At the time, Disney said it would have to spend about $ 14 billion to $ 16 billion a year on content.
That’s an ambitious schedule and a hefty bill for TV shows. But Disney has already shown that it is an efficient money-making machine. The broadcasting and cable business remains highly profitable and paying the bills these days, and the company’s creators are unlocking new production efficiencies like the 360-degree LED screens The Mandalorian used as virtual sets, reducing production costs and speeding up time-to-market. So even with holidays largely sidelined and launching streaming services into new markets, the entertainment and media leader was actually generating positive free cash flow in 2020.
I expect Disney + and the other members of the TV streaming family to add many millions of additional subscribers by 2021, and Disney + ‘s service price increase per month in the US – $ 2 per month in Europe – won’t hurt either. When paired with a gradual reopening of theme parks, a small box office revenue as feature films return to theaters and sporting events continue, next year could be a big year for Disney. The shares are traded for 85 times free cash flow even after the stock is up 22% this year and profits have nearly dried up due to the pandemic. But once Disney starts overlapping the worst of the pain caused by COVID-19, that statistic will improve dramatically. On the way to the new year, I am still a buyer.