Disney+ (DIS +0.15%) has been growing at a blistering pace since its launch last month. The entertainment giant shared that more than 10 million members had signed up for the new streaming service at its launch last month. However, Disney promised to be tight-lipped about the service's growth following that announcement, saying it would only comment on subscriber growth in its quarterly earnings reports.
Nevertheless, investors have been perusing third-party data for clues about Disney+'s performance since. After all, the streaming service is not only likely to be a major driver of Disney's share performance in the future -- it could also impact rivals like Netflix (NFLX +0.14%).
New data from Cowen may present the most detailed picture yet of the evolving relationship between the two companies. According to the research firm's survey of 2,500 U.S. consumers, Disney+ finished November with 24 million domestic subscribers: much better than Wall Street's estimates, which didn't see the company reaching 20 million until next year.
The greater takeaway from the Cowen survey may be what it implies for Netflix. Based on its data, 80% of Disney+ subscribers are also Netflix subs, which seems to undermine fears that Disney+ would be a Netflix killer. Still, the new streaming service does appear to be having an impact on Netflix. Cowen projects that the Disney+ launch will directly cause 1 million U.S. customers to drop their Netflix subscriptions in the fourth quarter. All told, the research firm expects 5.1 million U.S. Netflix subscribers to quit the service in Q4 and domestic net additions of 500,000 for the quarter.
A note from Bank of America was also bullish on Netflix, saying that subscribers' cancellation intentions had changed little with the launch of Disney+.
Image source: Netflix.
Netflix anticipated this
In its fourth-quarter guidance, Netflix called for just 600,000 net subscriber additions in the U.S., down from 1.53 million a year ago: a sign that it expected some kind of an impact from the Disney+ launch. While Netflix is losing some members to Disney+, it also has a powerful slate of content in the fourth quarter, including three movies that may get nominated for a Best Picture Oscar: The Irishman, The Two Popes, and Marriage Story, all of which have attracted buzz. That kind of content is likely to draw in new members even as some existing ones quit the service.
The company also inspired a new round of confidence from investors earlier this week when it released detailed subscriber data by region as it prepares to shift its reporting segments to four regions -- North America; Latin America; Europe, Middle East, & Africa (EMEA); and Asia-Pacific.
The release seemed to remind investors that international markets represent the company's biggest source of growth. Today, more than 60% of Netflix subscribers live outside the U.S. The data showed that Netflix's subscriber base is growing quickly in the Asia-Pacific region -- the world's biggest by population -- where paid subscribers rose from 4.7 million in Q1 2017 to 14.5 million in the most recent quarter. Meanwhile, Netflix's fastest growing region by subscriber count has been EMEA, where it has added 9.5 million new subscribers this year, about half of the company's total subscriber growth. That growth is a reminder that Netflix's foreign-language content and investments to localize platforms are paying off. It will be difficult for even Disney to match Netflix in those respects, though Disney has its own strengths in the form of several well-known legacy franchises.
Competition from Disney and other new players could present challenges for Netflix, as it will likely raise the costs of content and make it harder for Netflix to pass along future price increases. However, the leading streamer is still largely in control of its own destiny, especially in international markets, where its growth opportunities are greatest. Investors seem to agree, as Netflix stock has actually beaten Disney stock since the day before the launch of Disney+.
Netflix's massive subscriber base still gives the streamer an advantage, and it is part of the reason why Netflix can justify spending an estimated $15 billion on content this year. Ultimately, it's up to the company to deliver content that subscribers want to watch. If it can continue to do that, this growth stock story should take care of itself.
