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05 August 2020

Disney+ Success Saves the Day

Ben Staniforth, Investment Analyst, Redmayne Bentley

Despite continued hits to its theme-park business, Disney’s new streaming services have buoyed the firm somewhat, at exactly the point at which they needed it.

The entertainment giant recorded significant reductions in demand at both its theme park and movie studio businesses. Revenue declined 85% and 55%, respectively, helping to drag overall revenue down 42% year-on-year. With large gatherings all but stopped globally, theme parks and cinemas have experienced significant losses as demand fell to zero. While such entertainment venues are now starting to reopen, social distancing rules mean such venues have reduced capacity, essentially capping revenue and meaning that a return to their former glory is unlikely to happen quickly.

Despite filming and release delays to many of Disney’s hotly anticipated films this year, it has been able to utilise its new streaming service, Disney+, as well as its current streaming offerings to keep customers tied to its brand. Disney+ subscribers, now totalling 60.5m, helped increase the overall subscriber count to over 100m worldwide. This has allowed the firm to release Mulan, one of Disney’s new, big-budget live action films, onto its streaming service, albeit at a cost of US$29.99 to consumers in order to slightly offset the revenue reduction from cinemas. While Disney is entering the streaming business at a time when competition is particularly fierce, its colossal platform which spans everything from Star Wars to The Marvel Cinematic Universe has helped the firm to essentially skip the tough and unprofitable initial start-up years endured by Netflix.

However, questions will soon turn towards profitability. Disney’s ability to attract a large number of people to its services is impressive, but its ability to turn its impressive customer base into a highly profitable one will likely be one of the key drivers of financial performance and, in turn, share price performance, in the long term. The additional duration of the COVID-19 pandemic will also, to an extent, help dictate the firm’s future growth prospects, with continued hot spots of virus activity flaring up globally, seriously effecting their ability to sell not only movie tickets, but theme park passes also.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Disney+ Success Saves the Day
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