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Stock Analyst Update

Disney Continues to Invest in Streaming Battle

We are raising our fair value estimate to $140 from $127 due to much higher subscriber growth offset slightly by higher content spending.

Disney outlined an aggressive direct-to-consumer strategy at its investor day on Dec. 10 as the company appears to be taking the fight to Netflix globally. Disney also showed or discussed over 100 pieces of content that will stream on its DTC platforms over the next three years. As a result of its plans and content investment, management outlined a much higher outlook for Disney+, calling for 230 million-260 million subscribers by fiscal 2024, up considerably from the April 2019 forecast of 60 million-90 million. Even with 86.8 million current subscribers, Disney believes that Disney+ can triple in size over the next four fiscal years. We are raising our fair value estimate to $140 from $127 due to much higher subscriber growth offset slightly by higher content spending.

As part of its global battle with Netflix, Disney is launching a general entertainment content offering under the Star brand. Instead of a global standalone service, the Star content will be placed into Disney+ under a Star banner in Europe, Canada, Australia, New Zealand, and Singapore. Unlike Hulu, the U.S. content will only be sourced from the firm’s library and studios such as 20th Century and FX and supplemented with local language content. The new offering will launch on Feb. 23 with a EUR 2 price increase (to EUR 8 per month) with similar price increases outside Europe. The service will launch in other markets including Japan and South Korea later in 2021.

For Latin America, the same general entertainment content--with local-language programming--will be combined with live sports from ESPN, including soccer, under the Star+ brand for $7 per month beginning in June. The bundle of Star+ and Disney+ will cost roughly $9 per month. The pricing differential is low enough that we expect very few subscribers to sign up for just Star+. This bundled strategy is similar to the Disney+ Hotstar service that the company uses in India and Indonesia that now make up 30% of all Disney+ subscribers.


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