At the moment, the revenue outlook for Disney (NYSE:DIS) is slim. It's possible that theme parks don't open until June (single day passes can be purchased starting on April 19 as of this writing, but it's worth mentioning Disney is taking no travel reservations until June 1). Movie theaters are closed too, and even when they do reopen, Disney doesn't have a movie slated for box office release until May 29 with Artemis Fowl (don't be surprised if that gets delayed again) and Pixar's Soul on June 19.

Perhaps merchandising and toy-making partners like Hasbro can produce a rabbit from their hats, but for the most part the first quarter of calendar year 2020 will hinge on the performance of Disney's "media networks" segment. Fat chance of ESPN, ABC, and the acquired Fox channels being able to pick up all the slack, though, with professional sports seasons sidelined and corporate advertising budgets getting slashed. 

But what about Disney's nascent streaming segment? Now there's a piece of the magical empire worth getting excited about. It will undoubtedly grow by massive numbers, but investors should temper expectations when it comes to its ability to tow the rest of the entertainment conglomerate.

A family of four sitting on a couch watching TV.

Image source: Getty Images.

Disney streaming + pandemic

It's worth noting that Netflix (NASDAQ:NFLX) has nearly the same market cap as Disney thanks to the former's resilience during the coronavirus crisis (Netflix is up 12% year-to-date with a $160 billion market cap) and the latter's big decline (Disney is down 35%, $171 billion market cap). Granted, Netflix is the world leader in TV streaming with 167 million paying subscribers worldwide at the end of 2019. 

But Disney is no slouch, and extended social distancing and shelter-in-place orders are a boon for streaming entertainment. Disney+ has the added bonus of opening in new markets in March and April. Seven countries in Western Europe got Disney+ on March 24 (France was delayed until April 7), and the service will debuted in India this week. Based on its first couple of months performance in just the U.S., Canada, the Netherlands, Australia, and New Zealand last quarter, sign-ups should be a hot commodity -- especially considering much of the developed world is currently on lockdown.

Disney Streaming Service

Subscribers On Dec. 28, 2019

Subscribers On Dec. 29, 2018

% Increase

Disney+

26.5 million

N/A

N/A

ESPN+

6.6 million

1.4 million

371%

Hulu (video-on-demand and live TV)

30.4 million

22.8 million

33%

Total

63.5

24.2

162%

Data source: Disney.  

A worthless physical world?

The outlook is great for Disney streaming, but there's a rub: The segment ran at a $693 million operating loss on $3.99 billion in revenue during the last quarter. Adding lots of new subscribers doesn't mean that will change overnight. Launching in new countries and promoting the service cost money. Paired with what's sure to be plenty of red ink across the rest of the business, Disney is set for an incredibly rare operating loss to kick off 2020 -- one that could very easily extend into the spring months as well.  

Still, another massive surge in subscribers could be just the jolt Disney stock needs. After all, as it homes in on Netflix's lead, investors may become willing to value the stock much higher. While the streaming tech company is profitable, its free cash flow (what's left after basic operating and capital expenses are paid) was negative $3.14 billion in 2019. And Disney will be profitable again, once its physical assets are able to resume operations.  

Still, I'm in no hurry to buy more Disney stock quite yet. The cash burn will be high, and streaming will contribute to that line item rather than help it. But as the next quarterly report nears (likely to be scheduled sometime in May), the streaming segment's likely strong performance may change my mind.