Summary
- Disney announced a reorganization around Disney+ as parks and movie theaters struggle to reopen.
- The DTC businesses have very low ARPUs for the media company to focus operations on this area.
- The stock remains far too expensive at 25x FY22 earnings estimates.
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While Disney (DIS) is a great company, the world in which the media giant operates is under massive pressure causing unexpected disruption. For whatever reason, investors appear willing to pay premium prices for a stock not expected to return to 2019 earnings levels until FY23 (ends September). The latest corporate update reinforces the reasons for avoiding Disney at $130.
Image Source: Disney+ website
Too Focused On Streaming
Considering Disney is a massive conglomerate in the media and entertainment industry, the shift of the business towards a direct-to-consumer focus that just started last year shows desperate times for the company. Especially considering the Disney+ video streaming service doesn't even charge a monthly rate equivalent to the average movie theater ticket price.
For FQ3'20, Disney+ subscribers surged to 57.5 million, but the average monthly fee was only $4.62. The company is only generating $266 million in monthly revenues from the SVOD service, while providing consumers with access to all of their content. Prior to COVID-19, Disney had single movies that would top these monthly revenues alone.
Source: Disney FQ3'20 earnings release
Due to the bundle with Disney+, ESPN+ also saw monthly subscriber fees dip 22% from last year to only $4.18. The early subscriber success is partly due to Disney giving away these services at price levels far below costs via traditional cable networks and movie theaters.
The company now has over 100 million DTC subscribers, yet, combined Media Networks and DTC & International revenues were down for the June quarter. Part of this was the difficult environment, but also viewers won't be returning to cable networks in the future. As well, one has to wonder how well Disney movies perform in the future when movies are now more easily viewable on Disney+ for a very affordable price in comparison to lugging multiple kids to a movie theater.
