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HomeMarketIs Disney a No-Brainer Buy? 3 Things It Still Has to Prove.

Is Disney a No-Brainer Buy? 3 Things It Still Has to Prove.

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Disney (NYSE: DIS) released fiscal first-quarter earnings on Wednesday morning, and the market responded with a loud “meh.” After opening up with a brief pop, the stock quickly fell and was trading down about 1% for most of the session.

Few other companies have so many evident competitive advantages yet have struggled so much on the stock market, as the stock has been basically flat over the last decade.

Some investors believe Disney is finally turning the corner after several years of underwhelming returns. After all, its streaming business is now profitable, and it fully owns Hulu. It’s also set to launch the flagship ESPN streaming service in the fall.

There’s certainly potential in the stock given its bevy of assets and the recent performance of streaming leader Netflix, which shows that the streaming market may be even bigger than investors had believed.

However, there are three things Disney needs to demonstrate before it’s convincingly on a path to growth.

Mickey and Minnie Mouse standing outside of the Magic Kingdom.
Image source: Disney.

Disney has succeeded in turning its streaming business profitable, but growth is still an issue. In a quarter when Netflix added nearly 20 million subscribers to its streaming service, Disney lost 700,000 on Disney+ and added 1.6 million on Hulu, a net gain of 900,000. It also raised prices, so streaming revenue was up during the quarter even though subscriber growth was minimal.

Disney’s record over the last year is more impressive as it added 13.3 million subscribers to Disney+ over the last four quarters, though that number may have been boosted by the new bundle with Hulu. It also added 3.9 million subscribers to Hulu.

Disney’s streaming strategy has long seemed muddled. Netflix, by comparison, has stated for years that it wants to provide a wide range of video entertainment options so it has something for everyone.

The value proposition with Disney’s multiple options seems less clear. Owning Hulu outright gave Disney a chance to merge the two services together, making the customer experience simpler and meaning it only has to advertise and find programming for one service. The current bundle can feel clunky and unnecessary, and Disney seems poised to make a similar mistake with Fubo and Hulu + Live TV, keeping them as separate services rather than combining them.

Its streaming proposition could grow even messier when it launches ESPN to streaming as it seems poised to own at least four separate streaming services, bundled or not.

The recent slide in Disney subs might be a blip, but I’d like to see steadier growth from a segment that is supposed to represent the company’s future.

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