Walt Disney (DIS) entered the fray in the streaming wars in earnest in November of 2019 with the launch of Disney+. The service has been a success, reaching over 116 million subscribers in less than two years.
What's more, Disney+ is still in expansion mode. On Aug. 31, the company added several Latin American countries to its active markets list. The move will likely add millions of additional subscribers and could very well be a catalyst to lift Disney's stock price.
A potentially lucrative market
Latin America is estimated to have a population of over 600 million. A population that size could be a very lucrative market for Disney. Mexico, Brazil, and Argentina are among the most populous countries in Latin America.
Netflix (NFLX -0.38%) reported having 38 million subscribers generating an average revenue per month of $7.50 in Latin America. Of course, Netflix has been operating in the region for several years, and it attracts a somewhat different demographic compared to Disney. Still, the number of Netflix subscribers highlights the potential market size. After all, these are households that enjoy streaming content and have the internet bandwidth required for streaming.
Interestingly, Disney is launching its streaming product in Latin America in conjunction with its Star brand, which has been successful in other markets (India, for instance). In fact, over 40% of the 116 million Disney+ subscribers are from the Star brand. So far, Disney has been pricing the Star-branded product at a lower price point to attract more subscribers, and it remains to be seen if that will be the case in Latin America.
What this could mean for investors
Disney's stock managed to move higher in 2020 despite the stay-at-home orders and temporary workplace shutdowns issued by governments worldwide to help slow the spread of COVID-19. Spending more time at home, consumers looked increasingly to streaming service providers to help pass the time. As a result, Disney's various streaming services attracted new subscribers rapidly, and investors got excited and continued to buy the stock.
That stock price jump came despite the temporary closure of most of its most lucrative operations. Theme parks, hotels, and cruise ships were forced to shut down temporarily as the world worked (and continues working) to get the virus under control. While stay-at-home orders have been mostly lifted and economies are mostly reopened, the pandemic isn't over. Disney's operations are nearly back to full strength, but the stock has been somewhat stagnant for the past few months despite that good news.
Part of the reason is that the reopening of economies has somewhat slowed the growth of its streaming services. Whether justified or not, investors appear to place a higher value on revenue from Disney's streaming services than from other areas.
It's quite likely that the launch in Latin America, if successful in attracting several million subscribers in the first few months, could have a magnified effect on Disney's P/E ratio and its stock price.