Will the Walt Disney Co (NYSE:DIS) Streaming Service Drive Its Future Growth?

The Walt Disney Co (NYSE:DIS) has been in the news lately for all the wrong reasons as analysts and reporters focus on the lower earnings guidance announced by the entertainment company. Many investors are concerned about the poor figures being reported by Disney Media Services led by the declining subscriptions to its ESPN channel.

Disney’s stock price dipped slightly after the company’s CEO, Bob Iger, announced that fiscal year 2017 earnings would be in line with fiscal year 2016 earnings. However, the earnings guidance is not enough reason to warrant the decline given that Disney recently launched its new streaming service, which competes directly with Netflix, Inc. (NASDAQ:NFLX).

The company’s new streaming service, which is expected to be available in late 2019, is likely to be quite successful given that it will air original Disney content. The company has a history of blockbuster movies through its Star Wars and Marvel movie franchises and given that the two shall be part of its streaming service, the probability of success is quite high.

The launch of the streaming service is likely to compensate for the declining subscriber numbers in the ESPN cable service network. Although the demise of Disney’s Media Networks division has been propagated on most media networks, other divisions within the company are growing significantly and might soon surpass the media division.

Disney’s second largest division, that is, parks and resorts, reported 17% growth in Year-to-date operating income, hence, if the division keeps growing at this rate, it could easily surpass the media division. Furthermore, the growth in Disney parks and resorts revenues is not being driven by its US parks, but it is the parks in international locations such as Shanghai Disney that are driving the growth of this segment.

According to analyst estimates, Disney’s streaming service will need 32 million global subscribers at $9 per month in order to become profitable. The service also places Disney in direct competitors with other media companies such as HBO and CBS Corporation (NYSE:CBS).

Finally, Disney has significant potential for growth in its parks and resorts segment, which could provide value for investors even as they wait for the launch of Disney’s streaming service. The question remains whether Disney is a good long-term investment at its current price.

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