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Disney earnings preview: analyst downgrade
Disney is a three-part business now – theme parks, films and streaming. Whilst streaming is going very well – thanks in no small part to lockdown – the other units are not performing so well.
DIS was downgraded to neutral from buy by MoffettNathanson ahead of the company’s earnings to be released after the market close on Tuesday (May 5th).
“There are a number of risks that could lead this unprecedented event to have a longer impact, with earnings revisions massively skewed to the downside,” 5-star analyst Michael Nathanson wrote in the update.
“Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.”
MoffettNathanson expects the theme parks unit revenues to fall 33% from $26.2 billion to $17.7 billion this fiscal year, which ends in September. Revenues are seen down 1% next year as the drag from Covid-19 lingers before bouncing back 22% in 2022. In films, the analyst sees earnings down 20% this year to $2.7bn on a 23% drop in revenues.
Netflix, Apple, Disney: Who will you back in the battle of the streamers?
Netflix was once the king of streaming, but its dominance could be coming to an end. Competition has already been fierce thanks to Amazon Instant Video and Hulu, but the streaming market is about to get a lot more crowded.
NFLX has now turned negative on a year-to-date basis, with the stock feeling the pressure thanks to an uncertain outlook for the company. Both Apple and Disney are launching their streaming services this year and Netflix is sure to suffer as a result – especially as both drastically undercut its pricing.
Apple TV+ launches on November 1st and reportedly has a budget of $6 billion in order to help it get some of Hollywood’s biggest stars involved. Already on the starting line-up are Reese Witherspoon, Jennifer Aniston, Jason Momoa and Oprah.
Apple is offering a first-year subscription completely free with the purchase of any new Apple device – a great way to leverage its existing market even if they do already have other subscriptions.
However, it remains unclear whether Apple TV+ will also have a library of licensed shows and films alongside its own original content. Without this its offering could seem rather sparse at launch. The service will launch with nine shows and Apple plans to add another five over the next few months.
This lack of choice could see consumers treating Apple TV+ more as a supplement to Netflix – are many really going to cancel their subscriptions for the sake of nine shows?
Is Disney a bigger threat to Netflix than Apple?
While Apple has the capital to throw behind new content, Disney represents a more established threat. Its streaming service, Disney+ is set to launch with an extensive back catalogue of beloved classics. And that’s not to mention mega-franchises like Star Wars and the Marvel Cinematic Universe, as well as content from National Geographic. This is a much bigger blow to Netflix.
Like Netflix and Apple, Disney will also be investing heavily in new shows. In the first year the service will premiere over 25 original series, as well as 10 films.
In this respect, Apple seems like something of an outlier. It’s tiny library of original shows may attract Apple enthusiasts, and the small price tag might see it sit alongside consumer’s existing subscriptions. Given that a lot of consumers will be getting the first year free anyway, it will be a while before we know whether those initial subscribers translate to paying subscribers in twelve months’ time.
Apple could be hoping to use its TV+ offering as a way of ensuring brand loyalty. Amazon already does this with its Instant Video Service. It’s only a few pounds or dollars more each year to opt for the full Prime subscription, which also includes free delivery and music streaming.
Even if it is built to sit alongside its competitors, it still creates problems for Netflix. The last time the company raised prices it lost subscribers – with more alternatives out there Netflix will have to think twice before it ups its costs again. Just how loyal are Netflix customers: if the company raises its prices will they drop rivals to free up disposable income or just jump from the most expensive ship?
Iger: Apple and Disney might have merged if Jobs were still alive
As Apple stock nears its all-time highs, Disney CEO Bob Iger muses in an extract from his new autobiography that the two companies probably would have joined forces by now if the company’s founder Steve jobs were still alive.
Bob Iger and Steve Jobs were good friends, having served on the boards of each other’s companies for many years. Jobs had been on Disney’s board since 2006 after the company acquired Pixar for $7.4 billion, while Iger has been a board member at Apple since 2011.
Now, with both companies announcing competing streaming services, Iger has chosen to resign from the Apple board. He had warm words for Apple’s current CEO Tim Cook, his fellow board members, and the company as a whole. But his relationship with Apple could have been closer still, he believes.
In his upcoming autobiography, an extract of which has been published in Vanity Fair, Iger says:
“With every success the company has had since Steve’s death, there’s always a moment in the midst of my excitement when I think, I wish Steve could be here for this.”
“It’s impossible not to have the conversation with him in my head that I wish I could be having in real life. More than that, I believe that if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously.”
Appney? Disple? Could Apple and Disney really have merged?
While Iger may have dreamed of a union between Apple and Disney, and many analysts speculated over the prospect, it’s highly unlikely that a deal of that sort could go through today.
Even if Tim Cook likes what he reads in Iger’s autobiography, there would be a huge number of hurdles to overcome.
Regulatory scrutiny, particularly over tech companies, has increased significantly in recent months. The Trump administration, although business friendly and borderline allergic to red tape, is currently in the midst of an antitrust probe into Apple, along with Google, Facebook and Amazon.
Apple has a market capitalisation in excess of $1 trillion. Next to this Disney’s $246 billion market cap may seem quaint, but if Apple were to acquire it, it would be the biggest deal in history. It would have thrown up a huge number of issues at a time when the company is already being heavily scrutinised.
But it’s a deal that would have made sense: Apple has recently announced its own streaming service, but the company has little experience in this realm. Disney’s resources, not to mention its extensive back catalogue of content, could have done a lot to help Apple+ take on Netflix.
Instead, Disney and Apple are left with rival streaming services – Disney’s is $2 per month dearer than Apple’s, but promises to launch with some of the most loved and successful movies, TV shows, and franchises on the planet. Apple has the money to invest in its own great content, but in this respect it will be playing catch up to Netflix.
So even though a merger with Apple may have been desirable, the future is looking pretty solid for Disney on its own. Apple+, on the other hand, remains unproven.