The coronavirus pandemic has brought a lot of bleak news for Walt Disney (DIS 2.47%). The company's theme parks remain closed around the world, the movie business has essentially shut down, and even television networks are struggling with a lack of new shows and live sporting events.
About half of all Disney revenue comes from its Parks, Experiences, and Products and Studio Entertainment divisions, while Media Networks provides about a third. That means that the company -- which had nearly $21 billion in first-quarter revenue -- now will have much less.
That won't be fully evident when Disney reports second-quarter earnings on May 5, since that report will only include most of March when some shuttered divisions were still operating. But Q3 will be bleak. However, Disney does have a bright spot -- Disney+.
| Disney Segment: | Q2 Revenue: | Q2 Operating Income: |
|---|---|---|
| Media Networks | $7.36 billion | $1.63 billion |
| Parks, Experiences, and Products | $7.39 billion | $2.33 Billion |
| Studio Entertainment | $3.76 billion | $948 Billion |
| Direct-to-Consumer & International | $3.98 billion | ($693) billion |
| Eliminations: | ($1.65) billion | ($221) billion |
| Total Revenue: | $20.85 billion | $4 billion |
Data source: Walt Disney.
How strong is Disney+?
Disney+, the company's new streaming service which features the Disney library, including its classic animation, Pixar, Marvel, and Star Wars content -- along with a lot more -- launched in November. Powered by heavy interest in The Mandalorian, the first live-action series set in the Star Wars universe, the streaming service reached 10 million subscribers fairly quickly.
Since social distancing and staying-at-home became the norm, Disney+ has exploded. The service had 50 million subscribers in March. Those numbers actually reached before the U.S. had widely shut down and were actually driven by expansion into eight European markets and India (with its population of over 1 billion).
"We're truly humbled that Disney+ is resonating with millions around the globe, and believe this bodes well for our continued expansion throughout Western Europe and into Japan and all of Latin America later this year," said Disney Direct-to-Consumer & Internationa Chairman Kevin Mayer in a press release.
Those numbers may be the tip of the iceberg. Netflix (NFLX 3.04%) is already in 190 countries and has an astounding 183 million subscribers. It added 15.8 million in the most recent quarter -- about double what it had forecast (before the coronavirus pandemic).
Those figures suggest that Disney has a lot of room to grow its streaming service. Currently, the Mouse House charges $6.99 per month or $69.99 per year for Disney+. It also offers bundles with Hulu and ESPN+, so it's impossible until the company shares more info to get an exact revenue picture. But if you assume $6.99 per month per customer, the numbers are stunning:
- $349 million a month
- $4.18 billion a year
If that number doubles (and it's not inconceivable that it could do that quickly), than Disney has a business which has on its own become bigger than any of the company's segments.
Disney+ has been a lone bright spot for the company. Image source: Walt Disney.
Is Disney+ a better business than Netflix?
Because Disney has a huge archive of content, its costs are actually lower than Netflix's. The Mouse House does have to create signature shows for its network, but its impressive catalog of intellectual property allows it to do so with very little risk. The company essentially knows that a Star Wars show or a series based on any of The Avengers will do well.
Netflix has to throw a lot of content at the wall to see what sticks. That's an expensive strategy compared to having a huge library of beloved, timeless favorites that you can supplement with new content that's nearly sure to be a hit.
It's not hard to imagine Disney+ reaching Netflix-like numbers. If it does that, it will be roughly double the size of any other segment in the company. That may take years, but the current situation should speed that along, and a pandemic baby boom may lead to a big boost of families turning to Disney in 4-5 years.
Ultimately, Wat Disney does not need to be saved by its streaming service, as once the pandemic passes, it will eventually get back to normal. Disney+, however, makes the company much stronger and should make it a long-term buy despite its current bleak situation.
