Disney – Ten million just the beginning

So popular the sign-up website crashed! Disney+, Disney’s new video streaming service that competes with Netflix, reached 10 million subscribers just one day after launching. To put this in context it was more subscribers than expected by the end of the year, and analysts were expecting only 10 to 15 million by October next year. In fact, 10 million is already 1/3 of the way to Disney’s goal of 30 million US subscribers … by 2024. Not bad for the first day!

Rapid subscriber momentum is likely to continue. These first 10 million subscribers signed up when the service was live only in the US, Canada and the Netherlands. Since then it has been launched in Australia and New Zealand and will launch in Western Europe next March. And partner deals like with Verizon (the largest US mobile operator) help – Disney+ is offered free to all new and existing Verizon Unlimited wireless customers, estimated to be up to 20 million US subscribers, and Verizon is paying Disney for each subscription.

The movie business continues to dominate at the box-office. Disney is set to have the top 8 films after the year wraps up with Frozen II and Star Wars 9, including the highest grossing film of all time with Avengers: Endgame. Apart from being a record box-office haul, this ‘must watch’ content will be streamed exclusively on Disney+, providing further momentum for subscriptions.

This is a classic example of an Alphinity investment, as expectations build over time. Disney’s announced its pivot to streaming in August 2017, and subscriber expectations started low. To begin with investors expected a few million subscribers by the end of 2020 and 10 to 20 million by 2024. More details emerged over the next 18 months and expectations increased, but not by nearly enough: it took the company publishing its target of 60 to 90 million subscribers by 2024 at its Investor Day in April for estimates to skyrocket. With compelling content, partnerships like Verizon, over 600 million broadband homes outside of China, and 10 million subscribers signed by just the second day we think expectations are still too low and long-term earning estimates will continue to increase.


Author: Lachlan MacGregor, Portfolio Manager

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