Disney Takes the Lead in Streaming. Is It Time to Buy Disney Stock?

Walt Disney (NYSE: DIS) is cementing its place atop the streaming industry.

The entertainment titan added 14.4 million Disney+ subscribers in its fiscal third quarter, which ended on July 2. That was well above the 10 million additions Wall Street expected.

Disney ended the quarter with 152.1 million Disney+ customers, up 31% compared to the prior-year period. Across all its streaming services, which include Hulu and ESPN+, Disney's subscriber base grew to 221.1 million. That's slightly above the 220.7 streaming paid memberships Netflix (NASDAQ: NFLX) reported at the end of June.

Disney sees its Disney+ customer count growing as high as 245 million by the end of fiscal 2024, with the midpoint of its projected range at 230 million. Although that's at the low end of the company's prior forecast of 230 million to 260 million, it still represents solid growth at a time when Disney's rivals are struggling to add subscribers. Netflix actually lost nearly a million streaming members in the second quarter, while Warner Bros. Discovery added only 1.7 million subscribers across its HBO Max and Discovery+ streaming services during the same period.

To further its streaming ambitions, Disney will launch an ad-supported version of its popular streaming service on Dec. 8 to appeal to more price-sensitive consumers. "With our new ad-supported Disney+ offering and an expanded lineup of plans across our entire streaming portfolio, we will be providing greater consumer choice at a variety of price points to cater to the diverse needs of our viewers and appeal to an even broader audience," Disney executive Kareem Daniel said in a press release.

The new ad-supported version of Disney+ will be priced at $7.99 per month. That's the current price of the service with no ads. But Disney announced a series of price hikes for its streaming services slated to go into effect later this month. The price of the premium version of Disney+ without ads will rise to $10.99 on Aug. 23. Hulu and ESPN+ subscribers will also see their prices rise considerably.

The price increases should help to boost the profitability of Disney's streaming business. Although its direct-to-consumer revenue jumped 19% year over year to $5.1 billion in its fiscal third quarter, the division generated an operating loss of $1.1 billion.Yet CFO Christine McCarthy said during a conference call with analysts she's "confident that Disney+ will achieve profitability in fiscal 2024." Raising prices could help Disney achieve this important goal.

The entertainment giant has been able to absorb mounting losses for its streaming operations thanks partly to the impressive profitability of its parks and resorts. Revenue in Disney's parks, experiences, and products segment soared 70% to $7.4 billion in the third quarter, while its operating income increased more than sixfold to $2.2 billion. Attendance at the company's theme parks continues to recover now that coronavirus-related restrictions have been eased. New offerings such as its Disney Genie+ service and Lightning Lane entrances, which allow guests to speed through lines for rides, are also helping to boost the segment's sales and profits.

Still, investors want Disney to achieve sustainable profitability in its streaming business, particularly as the cord-cutting trend accelerates. Disney will eventually need profits from Disney+, Hulu, and ESPN+ to offset expected declines in its cable and broadcast networks.

So, is Disney stock a buy?

Disney has proven that it can survive a global pandemic and all manner of economic environments. This, combined with its diversified business lines, helps to reduce the risk for investors.

Better still, the company's streaming services represent a powerful potential growth driver, especially if management can deliver on its profitability targets.

Best of all, even after its recent gains -- Disney's shares rose about 5% after its stronger-than-expected third-quarter report -- its stock is still priced at a roughly 40% discount to its highs back in early 2021.

For all these reasons, investors should consider buying some Disney shares today.

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Joe Tenebruso has positions in Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends Warner Bros. Discovery, Inc. and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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