Disney Investors Look to a Strong Disney+ Result For the March Quarter

Expect Disney management to show off the performance of its direct-to-consumer segment amid a challenging period for parks and other lines of business.
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The early performance of Disney+ looks to be a bright spot in an otherwise grim-looking quarter for Disney.

The $7 per month streaming service, which launched in November, has already accumulated tens of millions of paying subscribers across the U.S. and Western Europe. And Disney management will likely say more about the early reception of Disney+ when the company reports its latest financial results after the close on May 5.

Disney  (DIS) - Get Report shares fell 3% on Monday to $102.25.

Less than six months after launching, Disney+ racked up 50 million paying subscribers, particularly welcome news for investors as Disney parks and cruises temporarily shuttered owing to the pandemic. Disney shares have sunk more than 30% this year amid disruptions to several lines of Disney's business. 

The pandemic has been a tailwind for its streaming service, however, with subscriptions picking up steam as consumers in the U.S. and Western Europe sheltered at home. The Disney+ app was downloaded more than 11 million times in the first week it was available in Europe, and research points to a particularly positive response among families with kids.

Peter Fondulas, principal at the media research firm Hub, said that Disney+ has quickly realigned the streaming landscape. In an April survey of U.S. consumers, Hub found that nearly one-third of streaming subscribers had signed up for Disney+; and among those quarantined with kids at home, 54% of those surveyed were already subscribed. 

“What our study shows is exactly where [consumers are] turning to fill their newly found viewing time -- primarily to streaming services that offer a combination of exclusive originals, family-friendly titles, and older shows that can provide a bit of nostalgic solace," said Fondulas. 

Disney+ has even drawn praise from Netflix CEO Reed Hastings, who said on a recent call with shareholders that he has "never seen such a good execution of the incumbent learning the new way and mastering it." 

That all adds up a strong March quarter for Disney's direct-to-consumer (DTC) segment -- at least as far as subscriptions are concerned.  

In a recent note, MoffettNathanson raised its paid subscriber forecast for Disney+ to 55 million by the end of Disney's fiscal 2020 (end of September). Subscriber strength won't generate a profit for another few quarters, however: Disney's DTC segment will lose $4.3 billion this fiscal year, according to MoffettNathanson's estimate, with Disney likely to reinvest revenues from new subscriptions. 

Media companies, Disney included, are also grappling with work stoppages that could disrupt the flow of new content. 

For Disney, a few much-anticipated series and films bound for Disney+ had their production halted this spring. Those include a trio of Marvel Studios shows due for release this year or early next, and a reboot of Home Alone. Productions are expected to resume in August at the very earliest, according to the WSJ. 

Disney is filling in some of the gaps by releasing new films on Disney+, either directly or after a short digital rental period. 

Disney released the Pixar film Onward on Disney+ in early April, and will do the same with the family adventure film Artemis Fowl in June. It could also move up direct-to-consumer release dates for other major releases, such as Mulan, which is currently slated for a theatrical release in late July. 

Disney has targeted between 60 million and 90 million paid Disney+ subscribers by fiscal 2024, and originally said the segment would be profitable by that time as well. 

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