For three long years, Disney shares have lain dormant. S
Through it all, the mouse house slept.
Until now.
On Friday, Mickey leaped from the bed like a bat out of hell. And what,
Disney Plus (or Disney+), the entertainment company’s new streaming service. During Thursday’s investor day all the details were finally revealed, and investors went BANANAS. Disney shares launched 11% on historic volume to a new record high.
Here’s what all the fuss was about.
The Fuss
Disney + will include over 400 current titles from the Disney library and feature 25 original series and ten movies. Marvel and Star Wars lovers are both geeking out over multiple series slated for both universes. But what really has investors going gaga is the ultra-cheap price tag.
It’s $6.99 per month or $69.99 per year. The annual price works out to $5.83 a month. Do you want to buy one cup of coffee at Starbucks this month or have unfettered access to Disney’s vault? By comparison, Netflix offers three plans ranging from $8.99 to $15.99.
If I were Netflix, I’d be afraid, very afraid. Let’s view Friday’s fun through the lens of technicals and fundamentals.
The Technicals
Disney went up because there was more demand than supply.
The END.
The Fundamentals
Here’s where we can build a narrative to put some meat on the rally’s bones. The first thing that surprised me about last week’s moonshot was that everyone already knew Disney + was coming around the corner. It was known that they had original programming in the works (like The Mandalorian). It was known that subscribers would receive access to Disney’s incomparable vault of media assets. It was known that they would compete and likely steal millions of subscribers from Netflix.
What was unknown was the price. And that made all the difference.
And what was its revelation ultimately worth?
$26 billion!
Market Capitalization Detour
One of the ways that market commentators like to measure the impact of a stock’s rise or fall is to equate it to the change in the underlying company’s market capitalization (or market cap, for short).
It’s a clever way to make you sound smart.
Market capitalization is the way that Wall Street measures the size or value of a company. Here is the formula:
number of shares outstanding x price per share
So, if your company has 1 million shares outstanding and is trading for $100 per share, then your market cap would be $100 million. That’s how much it would cost for someone to buy up every share of your company.
Now, to Disney.
The magical mouse house currently has 1,797,621,400 shares outstanding. (That’s roughly 1.8 billion.) On the day before Friday’s rocket ship ride, DIS closed at $116.60.
1.797,621,400 x 116.60 = $209.6 billion
By Friday’s close, however, Disney had grown to $131.34.
1,797,621,400 x $131.34 = $236.1 billion
That’s right, friends. The whiz kids on Wall Street decided the additional future cash flows due to Disney + are worth an extra $26.5 billion in market cap.
Whether you agree or disagree is irrelevant. The tribe has spoken.
Subscribers & Math
Now, let’s have fun with some math to see what our dear fundamental analysis friends might be thinking.
Netflix currently has 139 million subscribers. I am one of them and have been for years. Do you know what analysts are expecting for Disney+ subscriptions?
I’ve seen anywhere from 60 million to 160 million. The last number came from a starry-eyed analyst at JPMorgan. The larger metric will take some time but, hey, that’s what the stock market is all about – d
On a side note, I don’t see why Disney couldn’t surpass Netflix. Have you seen the original programming on Netflix? It’s 99% crap.
So, if Disney did get to 160 million subscribers, we’re talking about roughly $1 billion in monthly revenue ($12 billion annually). For a company that raked in $60 billion of revenue for all of 2018, that represents a 20% increase.
Was Friday’s rip-roaring rally justified? Sure. All you have to do is spin the numbers, homie.
