Shares of Walt Disney (DIS) surged on Friday after the company announced at an investor day that it will charge $6.99 per month for its Disney+ video streaming service, which is cheaper than Netflix's (NFLX) basic subscription.
DISNEY+ UPDATES: Disney announced at its investor day on Thursday that it will charge $6.99 per month for its video streaming service Disney+, and $69.99 for an annual subscription. Disney+, which is being touted as a premium streaming option for children and families, will immediately include content like "Star Wars" films, most Marvel movies, 30 seasons of “The Simpsons," as well as 18 of Pixar's 21 movies, 5,000 episodes of Disney Channel shows and 100 Disney Channel original movies. ESPN, ESPN+, news and prime-time television are not included in Disney+.
"We’re designing a product that we want to be accessible to as many consumers as possible," Disney Chief Executive Officer Bob Iger said during the investor day presentation. "We just feel that Disney is loved by so many millions and millions of people around the world."
Disney+ will roll out in the U.S. on November 12. Disney expects the service to be in "nearly all major regions of the world within the next two years."
On Friday, Iger told CNBC's David Faber in an interview that "I’m pretty optimistic about the ability for this thing to work. Particularly when you make it accessible because of the content we’re putting on, because of the user interface and because of the price."
WHAT'S NOTABLE: The pricing on Disney's ad-free service is lower than Netflix, which announced earlier this year it was raising prices on its standard plan to $13 from $11.
Netflix and Amazon Prime Video (AMZN) each cost $8.99 a month for their most basic plans. Netflix’s premium pricing tier costs $15.99 for 4K resolution and the ability to watch on four devices simultaneously. Neither Amazon Prime Video nor Netflix currently offers an annual subscription plan.
At its investor day event, Disney said it expects to have 60M-90M subscribers worldwide for the service by the end of 2024. By comparison, Netflix has reported that it finished 2018 with 139M paying memberships.
DISNEY 'SURPRISES ON THE UPSIDE': JPMorgan analyst Alexia Quadrani said in a note to investors that Disney "surprised on the upside" at yesterday's event, providing more financial disclosure and revealing a "more content rich streaming service" than previously expected. She added that management's 60M-90M target for Disney+ by 2024 was on the higher end of her already above consensus expectations. Quadrani, who reinstated coverage of Disney with an Overweight rating and $137 price target, said she walked away from the meeting "very encouraged about the outlook and its likely success." RBC Capital analyst Steven Cahall said Disney's presentation "exceeded expectations and should turn sentiment bullish." The analyst sees Disney+ content and expectations of average revenue per user as "compelling" while noting that the guidance for subscribers was "significantly higher" than expected. Further, the firm's Mark Mahaney told CNBC on Friday that Disney has a "major advantage" over Netflix because it does not need to spend much to build up its back catalog, and will pressure Netflix to continue to differentiate its service with more and more original content spend. Still, Mahaney said he thinks most consumers are "perfectly willing" to sign up for more than one streaming service.
Meanwhile, Morgan Stanley analyst Benjamin Swinburne said Disney's target for 60M-90M Disney+ subscribers by year-end 2024 was well above his prior 30M subscriber expectation and that the company's guidance for roughly 110M-160M subscriptions for its three major OTT subscription services by 2024 was also well ahead of his forecast for just over 90M. Profitability by FY24 is also earlier than his expectations, noted Swinburne, who believes Disney's expected timeline for DTC profitability has positive implications for long-term EPS. While the analyst said there may be short-term pressure on Netflix following the Disney investor day, Swinburne advises investors use any selloff as a buying opportunity, citing his view that Netflix will still be offering greater breadth and volume of content.
SunTrust analyst Matthew Thornton said that while he continues to view Disney+ posing incremental competition to Netflix for new subscriber adds, he expects it to be "manageable." The analyst said that the Disney+ event contained "no big surprises in terms of pricing, timing, availability, and content," adding that the accelerated cord-cutting from the launch should also be positive for Netflix, which offers a "much broader range of content." In fact, Thornton expressed his belief that Disney+ should be a "modest incremental positive" for his Buy-rated Roku (ROKU) as it will be available for sale on its platform given its "potential for direct monetization."
PRICE ACTION: In morning trading, shares of Netflix are down 3% to $356.78, while Disney is up 10% to $128.28.