Disney+ Already Rattling Netflix Investor Confidence

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When investors see big share price jumps in Dow Jones industrial average components this time of year, it’s probably around earnings. Walt Disney Co. (NYSE: DIS) is surging on word that there are already 10 million Disney+ subscribers just one day after it launched.

While much of this gain is being viewed as win for Disney’s streaming service, it’s also likely a loss for Netflix Inc. (NASDAQ: NFLX) and leaves the challenge open for Apple Inc. (NASDAQ: AAPL). While Netflix has been launching its own content, the Disney+ service offering brings exclusive original content from Disney, Pixar, Marvel, Star Wars and National Geographic directly to subscribers, and the bundled offerings add even more content.

Merrill Lynch has a Buy rating and $168 price objective. Analyst Jessica Reif Ehrlich issued a note that was incrementally more bullish on Disney’s monetization prospects beyond the legacy Pay TV model. The firm’s longer term base-case subscriber counts are 90 million for Disney+, 50 million for Hulu and 10 million for ESPN+, which is up from 60 million, 40 million and 8 million, respectively. She noted that Netflix reached 110 million Netflix subscribers in the past five years and asked “Why not Disney?” in that same light. Her investment rationale said:

We believe Disney shares will outperform peers as a result of strong DTC subscriber growth at Disney+, Hulu and ESPN+, a solid studio outlook due to blockbuster film releases and Parks & Resorts growth, aided by new Star Wars Lands attractions and the WDW 50th Anniversary in FY22.

Wedbush’s Daniel Ives also just released a report on Wednesday and called it a “jaw dropping 10 million subscribers” after just the first day. That is considerably higher than he and many other analysts were projecting:

This speaks to the 1-2 punch of success that Iger and Disney have coming out of the gate with unmatched content and a massive brand/distribution that makes the House of Mouse a legitimate streaming competitor on Day One to Netflix and could hit its long term sub targets by 2024 (60 to 90 million subs) potentially two years earlier at this pace in our opinion… we continue to believe that 10%+ of Netflix’s installed base could be disrupted/higher churn by these two stalwarts entering the streaming landscape. … We note Disney has roughly 7,500 TV episodes and over 500 movies including legendary franchises such as The Simpsons, Star Wars, and a myriad of Pixar, Marvel, and Disney classics that we believe makes this a legitimate streaming player right out of the gates.

CFRA had issued a note ahead of the big spike in users indicating that Disney+ could quite conceivably hit its target 60 million to 90 million subscribers and breakeven milestone by year five.

Investors sold off Netflix shares after the Disney+ numbers came to light. Netflix was last seen down 2.6% at $284.40, while shares of Disney were up 4.4% at $144.70 in mid-afternoon trading.


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