Disney's (NYSE: DIS) is out of the 2020 starting gate like a house afire, with its shares up nearly $2 over the previous close back on December 31, as of this writing. The reason for this hike is fairly simple, and it's all thanks to the subscriber estimates coming out around its increasingly popular Disney+ streaming service. Depending on who you ask, there's either cause for restrained celebration or a not-so-irrational exuberance.
Projections Vary, But Most Look Good
Projections are, of course, attempts to guess the future. As such, many projections turn out to be wrong. But looking at a consensus of projections from a few different sources can provide at least the framework of accuracy, and looking at several projections for Disney+ says the streaming service will likely continue to gain ground.
Bernie McTernan with Rosenblatt Securities, for example, expects that, by the end of 2020's first quarter, Disney+ will account for about 25 million subscribers total. That's not a bad number by any stretch, and it actually represents a significant upward bump from his previous projection of 21 million subscribers.
McTernan credits an “awareness of the service” along with “penetration of respondents” for the improved gains, suggesting that Disney+'s gains may actually be pulling some subscribers out of Netflix (NASDAQ: NFLX). That's bad news for Netflix, who took it on the chin with a terrible summer 2019 season, and also took two sets of lumps in December with less-than-favorable analyst reports. McTernan subsequently maintained Rosenblatt's $175 price target, more than reachable from current levels.
Bank of America (NYSE: BAC) brought its own analysts to the party, though their projections were somewhat more restrained. While Bank of America did note that Disney+ is the current growth leader in the streaming video field, it also noted that Disney's own long-term growth projections seemed to be a little less than what they believe the case. It noted that Disney was offering plenty of incentives, including various free connections and, of course, the whole concept of “The Mandalorian.”
Naturally, some of these free and trial users weren't going to turn into long-term subscribers, but Bank of America believes that Disney's figures—60 to 90 million worldwide subscribers and 20 to 30 million just in the US—were “conservative.” This was enough for Bank of America to maintain its “Buy” rating and keep a price target of $168, even more, reachable than Rosenblatt's figures.
Growth Was Kind of Baked In
It's easy to suggest that Disney+ was going to be the growth leader for at least a few months of 2020. After all, it's a service so close to brand new that the paint hasn't even chipped yet. It will easily lead growth over established services like Hulu, Netflix and the like. With cable television still flagging somewhat, as we saw with Comcast (NASDAQ: CMCSA) and its October earnings report that went from a bang to a fizzle, streaming video is proving the growth attraction in general. A new entrant in an emerging field really should lead growth by definition.
It certainly doesn't hurt that Disney+ has an inherent draw in the strength of its library. While there are some who look at Disney's choice of titles for its streaming library and wonder why on Earth it's not dumping everything it's got into the mix—even just a cursory look at Disney+ listings makes it clear that several titles will be poorly represented, if at all; anyone hoping to see the new “Ducktales” remake will be pretty disappointed as season two is out of the mix for now—there's something to be said for keeping some stuff in reserve.
After all, if Disney wants to keep its subscriber growth figures climbing, it's going to need a reason to keep people coming in and keep current subscribers forking over. New content is pretty much the best way to do that—ask anyone who resubscribes to Netflix whenever a new season of “Stranger Things” is about to drop—and between the masses of content that Disney has yet to release and is currently making, there's a good vein of new or new-to-you content that could be in play here.
Disney's set up Disney+ with an excellent chance of success. Drawing on a combination of its monster content library, its plans to keep up a pipeline of new content, and its connections to other services like the Hulu / Disney+ / ESPN bundle and Verizon (NYSE: VZ) FiOS—there's a lot to like about it right now, and there's likely to be more to like going forward. That makes Disney a leading candidate, and in a field that was starting to look a bit stagnant, it gives cable cutters one more reason to jump in the field.