Disney Earnings (my thoughts)

Disney reported blowout earnings. They beat on earnings, they beat on revenue. Their parks are profitable again. But most importantly they crushed their subscriber estimates.

Disney+ gained 12.4 million subscribers in a 3 month period. That means that Disney+ averaged over 1 million new net subscribers per week for three months during a time when the economy is reopening and after the flagship series The Mandalorian has ended. This gives me further confidence in their long term outlook of becoming a key streaming services in peoples households. My thesis remains unchanged -  Disney+ will reach hundreds of millions of subscribers (250+ million) by 2025.

As for the dividend, here's what Disney had to say: "And finally, in light of the ongoing recovery from the COVID-19 pandemic as well as our continued prioritization of investments that support our growth initiatives, the Board decided not to declare or pay a dividend for the first half of fiscal 2021. Longer term, we do anticipate that both, dividends and share repurchases will remain a part of our capital allocation strategy. However, for the time being, we don’t anticipate declaring a dividend or repurchasing shares until we return to a more normalized operating environment and our leverage is back to levels more consistent with a single A credit rating."

I love dividends more than most people. But in this case I think Disney is making the right decision in choosing to invest fully in this massive opportunity of Disney+. Their dividend will come down the road when they have more profits than needed to grow their business.

I also want to mention Netflix in this conversation. Investors across the board, between social media, CNBC, reddit, YouTube, have become increasingly bearish on Netflix. I believe that they are wrong, and  my original thesis is still correct on Netflix.

Netflix faces two main challenges to its story. The first is the large amounts of new streaming services entering the mix. The next is the idea that they have saturated their addressable market.

I disagree with both these bear cases for Netflix. Netflix is the global leader with higher ARPU than any other service. During a time of incredible competition for peoples attention they still managed to grow their service by 50 million subscribers. With the expansion into video games they will be able to add more value and depth to their original series and lower their churn rate.

The total addressable market for entertainment is massive. Only a couple companies are positioned to take advantage of this. I believe Disney and Netflix will be two of the significant winners over the next 10 years.