Source: PaxForex Premium Analytics Portal, Fundamental Insight
The battle for streaming seems to be in full swing, with Netflix racking up the bumps, competitors like Discovery and Time Warner creating Warner Bros. Discovery, and even tech giants like Apple and Amazon are entering the fray. But not everyone will survive in the streaming business in the long run.
We believe Disney has some structural advantages in streaming that competitors can't match. And we may see the fruits of the company's investment in streaming much sooner than many people think.
If we've learned anything about streaming content libraries in the last year, it's that not all content is created equal. Netflix has spent billions of dollars creating content over the past five years, but now it turns out that that content has a very short shelf life. The series "Orange is a New Black," "Squid Game" and "House of Cards" were hits, but will you be re-watching them again this year-or five or ten years from now?
Disney has arguably the best Marvel, Star Wars, Pixar and Disney Animation content franchises, and has more content for repeat viewing than any other streaming provider. This is important when building a streaming company because hits matter, but repeat viewable filler content is what gets views on a daily basis, and it has a much longer lifespan.
Disney isn't the only company offering franchise content. Warner Bros. Discovery has put together a great catalog with Harry Potter and the entire HBO library, but Disney still has the best franchise base in streaming.
The streaming wars so far have been fought over periodic hits and filling time in our lives. The purpose of television in the streaming era is almost entirely live sports broadcasts on cable television, and no brand is as big on sports as ESPN, a network 80% owned by Disney. ESPN+ is part of Disney's package, and it could eventually become part of a larger package if there is a reallocation of streaming services.
Apple and Amazon are betting on streaming, but if Disney decides to get fully into streaming, it has the balance sheet and infrastructure to be a major force. As a starting point, it has national cable rights to the NBA, the NHL and key NFL games. If these leagues move to streaming, it makes sense to use services with large audiences and global reach - and Disney could become the largest streaming provider in the world in the next couple of years.
The stock market and media in general want instant profits from Disney's streaming business, but it's a long game. The company is spending money now to build infrastructure and content that will be profitable for decades, because franchise content has a long lifetime value.
In addition to streaming, Disney has theme parks, cruise lines, merchandise and other ways to monetize content that go beyond the infrastructure of competitors. Streaming is not Disney's only good fit.
Recall that cable networks took decades to become profitable giants in the early 2010s before streaming started taking their share. The transition to streaming will be faster, and when we reach a more stable state, it could become even more profitable, given the ability to reach a global audience with a single service. Disney is better positioned as a streaming provider than its competitors when you consider its subscriber base, franchise content and position in live sports broadcasting with ESPN. One should not sell this stock before the fruits of the investment made today become apparent.
As long as the price is below the 108.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 95.26
- Take Profit 1: 91.00
- Take Profit 2: 85.00
Alternative scenario:
If the level of 108.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 108.00
- Take Profit 1: 113.00
- Take Profit 2: 120.00
