Disney overtook Netflix as the streaming leader, and is expected to extend its lead

Disney overtook Netflix as the streaming leader, and is expected to extend its lead

The Walt Disney Co. supplanted Netflix Inc. as king of the video streaming market, and is expected to widen the gap.

Disney DIS,
grabbed the mantle three months ago when the powerful content troika Disney+, Hulu and ESPN+ reached 221 million customers, edges Netflix’s 220 million subscribers. Analysts expect Disney to report more than 10 million net new subscribers in the third quarter, which would greatly outpace Netflix’s NFLX,
addition of 2.4 million subscribers in the period.

Competition should increase as both companies launch ad-supported platforms in the fourth quarter — Disney plans to launch in the US on December 8 after Netflix NFLX,
unveiled its own ad-supported service for $6.99 a month in the US on November 3. And analysts still like Disney’s chances of surpassing the streaming pioneer.

“Disney+ ad-supported will do very well and surpass Netflix,” Corey Kulis, vice president of marketing at software company Verve Group, predicted to MarketWatch. “While Netflix needs to develop and collaborate on technology, set up a new organization, get introduced to buyers and so on, Disney has all of that in place.”

When Disney+ ad tier debuts in the US and overseas in 2023, UBS analyst John Hodulik expects Disney+’s ad tier service to add $1 billion in incremental revenue in the first 12 months. Macquarie Research analyst Tim Nollen models slightly less, an $800 million sales opportunity next year if all markets were to launch, but also expects Disney’s direct-to-consumer revenue to surpass linear networks by the fourth quarter.

“We believe near-term subscriber growth will accelerate on content releases and international expansion, and next year’s slate also looks impressive, following ‘Black Panther 2’ and ‘Avatar 2’ theatrical releases in November and December, and following on Disney+. Nollen said in an Oct. 31 note that maintained an outperform rating and price target of $140.

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Insider Intelligence expects the ad-supported level of Disney+ to reach $1.02 billion in the US in 2023, and $1.19 billion in 2024.

“Disney already knows its audience and the advertising industry incredibly well,” Ashwin Navin, CEO of Samba TV, told MarketWatch. “The significant ability to align with top-tier content will accelerate new and untapped dollars flowing into Disney’s ad-supported streaming service.”

Disney’s subscription and revenue growth in video streaming against the likes of Netflix, Apple Inc. AAPL,
Comcast Corp. CMCSA,
Amazon.com Inc. AMZN,
Warner Bros. Discovery Inc. WBD,
Paramount Global PARA,
and others have been the focus of CEO Bob Chapek as a financial catalyst for his wide range of businesses. The idea is that the so-called DTC model will accelerate and stimulate sales of theme parks, merchandise, traditional films and TV, hotels and cruises.

Last week, Disney said it would launch a “limited test” to sell themed merchandise such as lightsaber collectibles and themed clothing related to select Disney+ shows and movies such as “Star Wars,” “Black Panther” and “Frozen” for about a week .

What to expect

Earnings: Analysts surveyed by FactSet, on average, expect Disney to report adjusted fourth-quarter earnings of 55 cents a share, up from 9 cents a share a year ago.

Contributors to Estimize — a crowdsourcing platform that aggregates estimates from Wall Street analysts as well as buy-side analysts, fund managers, business executives, academics and others — estimate earnings of 65 cents per share on average.

Income: Analysts on average expect Disney to report $21.28 billion in revenue in the fourth quarter, a jump from $18.5 billion a year ago. Estimates contributors predict $21.5 billion on average.

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Stock movement: Disney shares have bounced between gains and losses after earnings in recent years, rising after six of the last 12 reports.

Disney’s stock has fallen 35.7% so far this year, while the S&P 500 index SPX,
has fallen 20.9%. Shares in Disney have fallen 6.6% since the company released quarterly results three months ago.

What analysts say

In a note last week, Guggenheim analyst Michael Morris predicted that Disney will add 10.8 million total direct-to-consumer subscribers in the fourth quarter. Netflix reported 2.4 million net member additions during the recently completed third quarter, ahead of guidance of 1 million.

Read more: Netflix CEO says, ‘Thank God we’re done with shrinking quarters,’ as first growth in 2022 sends shares soaring

Attendance at Disney theme parks remains difficult in the Covid era. KeyBanc Capital Markets analyst Brandon Nispel noted domestic geolocation data tracking Disney’s attendance ended the quarter “somewhat negatively.”

He said Walt Disney World was closed on the 28th-29th. September due to Hurricane Ian, and “we’ll see [year-over-year] growth rates are decelerating faster than expected.” Total visitation at Disney theme parks for September was 82% of 2019, pre-Covid levels, Nispel said in an Oct. 19 note.

Disney shares are rated overweight on average with a price target of $136.75 by 28 analysts polled by FactSet.

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