There's no question that the coronavirus pandemic has been a boon for the video streaming industry. Subscriptions for services like Netflix (NASDAQ:NFLX) have surged, and third-party aggregators like Reelgood have also reported a sharp jump in streaming time.
That trend isn't a surprise given the stay-at-home mandates and advisories during the crisis, but one well-known streaming brand seems to be missing the party. Walt Disney's (NYSE:DIS) Hulu, born as a joint venture of the major broadcasters, has long lagged Netflix and Amazon Prime in subscribers, even though the service has a slate of strong content -- it offers television programs straight from the broadcast networks, and has taken home an Emmy award for outstanding drama for The Handmaid's Tale, something Netflix has yet to accomplish. Its longtime status as a joint venture made it something of a forgotten stepchild in the streaming industry, but that was supposed to change when Disney took majority control with its Fox deal last year.
Former Disney CEO Bob Iger touted the potential of Hulu, and planned to infuse it with new original programming and launch the service internationally. He also liked the service's appeal to young adults, which advertisers favor.
However, more than a year after the Fox acquisition, Hulu is starting to look forgotten again. In its recent earnings call, Disney announced that it would launch an international streaming service under Star, an Indian TV brand it acquired in the Fox deal, rather than Hulu. And Hulu's growth has been underwhelming during the pandemic, especially considering we're in a streaming boom.
The streaming service, which is only available in the U.S., added 5.1 million subscribers in the first half of the year, growing from 30.4 million to 35.5 million. That figure includes ad and ad-free tiers of Hulu, as well as subscribers to Disney's recently launched bundle of Disney+, ESPN+, and Hulu, and Live TV packages that come with Hulu. It's not necessarily bad -- Netflix saw similar subscriber growth in the U.S. in the first half of the year, despite having about double the market penetration of Hulu. But Hulu seems to have missed its best opportunity to pick up market share, and with the pull-forward effect from the pandemic, subscriber growth is likely to slow substantially now.
What's happening with Hulu? Here are a few explanations.
IMAGE SOURCE: HULU.
Disney+ has stolen the show
Disney+ has become the juggernaut in Disney's streaming arsenal. The service has brought in more than 60 million members since its launch last November, and it's naturally where Disney is investing most of its streaming resources. It's the platform that is hosting highly anticipated releases like Hamilton and Beyonce's Black is King, and will continue to get that kind of marquee content.
The platform has shattered the company's expectations, as management originally forecast it to reach 60 million-90 million subscribers globally by 2024. It hit that range in less than seven months.
But Disney+'s success leaves an even greater question mark hanging above Hulu, as Disney seems to be getting a better return on its investment and overall brand lift from Disney+, a global platform, rather than Hulu, which is only available in the U.S., and whose brand identity seems muddled.
Disney restructured Hulu at the beginning of the year, making what was an independently operating business a cog in Disney's direct-to-consumer segment. Among the changes was the departure of Hulu's CEO and the loss of Marvel shows on Hulu that moved to Disney+. As part of Disney's larger direct-to-consumer business now, Hulu is unlikely to get the resources and attention that Disney+ does, increasing its chances of underperforming.
It won't play internationally
Earlier this year, Iger said that Hulu would likely launch internationally next year; however, with the plans to make Star its new international streaming service, the prospect of Hulu going abroad now seems dubious. Launching two separate streaming services on top of Disney+, which is still expanding around the world, just doesn't make sense. And comments from CEO Bob Chapek on the earnings call seemed to put the kibosh on any kind of Hulu International.
Chapek explained on the earnings call that Hulu aggregates third-party content, while the Star service will host Disney-owned content from ABC Studios, Fox TV, FX, and other such sources. Chapek also added, "And Hulu also, I must say, has no brand awareness outside of the U.S., and nor does Hulu have any content that's been licensed to it internationally." That shows that Disney would essentially be starting from scratch if it took Hulu outside of the U.S. Additionally, Hulu's ad business won't transition easily to international markets.
Looking at those reasons as well as Star's strength in India, it's clear why Disney is elevating that brand and not Hulu.
Is it giving up on Hulu?
Hulu was launched in 2008, but the brand has been a perennial money loser. It was expected to lose $1.5 billion last year, though now that it's part of Disney its results are included in the direct-to-consumer segment and not broken out on an individual business.
Hulu has a number of assets, including a strong advertising business, a much higher average revenue per user than Disney+, and a broad content slate, but the brand exists in a corporate no-man's land. Disney has agreed to take full control of Hulu in 2024, buying out Comcast's stake for at least $5.8 billion, but its future seems uncertain after the breakout growth at Disney+ and the Star announcement.
With Hulu's growth likely to plateau following the lockdown period, Disney may want to consider other options for the tangential streaming service, such as selling it or combining it with a premium version of Disney+. As it stands now, carrying the loss-generating business with no significant plans to invest in it or expand it looks like a mistake.
10 stocks we like better than The Walt Disney Company
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2022 $1920 calls on Amazon, long January 2021 $60 calls on Walt Disney, short October 2020 $125 calls on Walt Disney, and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
5 Stocks Under $49
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The Nov. 2019 debut of Disney+ could not have had better timing.
Parkev Tatevosian
(TMFParkev)
Aug 7, 2020 at 9:10AM
Author Bio
Disney (NYSE:DIS) recently closed out what has been perhaps its most challenging quarter ever. The impacts of COVID-19 were felt in every segment of its operations. However, the effects were not all negative. Nevertheless, the company is relieved to put what is hopefully the worst of the pandemic behind it.
In the current phase of the outbreak, The House of Mouse was able to reopen some of its parks and restart some content production. Let's take a closer look at the state of its parks and streaming services in the second half of 2020.
IMAGE SOURCE: GETTY IMAGES.
Parks are opening but not at full capacity
The coronavirus pandemic hurt the company in a variety of ways, but perhaps none was worse than having to shut down its theme parks. Wrapped up into its parks, experiences, and products division, that segment contributed 38% of revenue in fiscal 2019, but its share of the top line has declined to 27% this year. Park closures resulted in an adverse impact of $3.5 billion on operating income for the segment during the quarter.
Worse, the reopening of Walt Disney World in Florida is not going as well as management expected. A resurgence of coronavirus cases in the region is causing people to worry about venturing out, leading to lower attendance at the park. The fate of these theme parks relies heavily on how safe people feel, and it's unlikely that the business will go back to pre-pandemic levels of attendance until there is an effective remedy to the virus.
Still, Disney does not need the parks to be at full throttle to benefit from reopenings. Discussing profitability for Disney World at reduced capacity, CFO Christine McCarthy said, "Right now, it's not as high as we had expected, but we're still in the net positive contribution level." The company has begun a phased reopening of its parks in Shanghai, Paris, Tokyo, and Orlando.
DISNEY+ SURPASSES 60 MILLION SUBSCRIBERS. IMAGE SOURCE: DISNEY.
Disney+ and Hulu have come to the rescue during the pandemic
The one bright spot for the company during the pandemic has been the performance of its direct-to-consumer streaming services, which have combined to reach over 100 million paying subscribers.
As of its latest update on Aug. 4, Disney+ has 60.5 million subscribers. The company isn't finished expanding internationally -- Disney+ will be available in the Nordics, Belgium, Luxembourg, Portugal, Indonesia, and Latin America by November. To give you an idea of the opportunity in those markets, Netflix had 36 million subscribers in Latin America at the end of its second quarter, and the population of Indonesia is 275 million.
Additionally, the company announced during the third-quarter earnings call that it will release the potential blockbuster film Mulan directly to its Disney+ platform on Sept. 4. Subscribers will be able to purchase the film for $29.99. The company expects the offering to attract new members to the service as well as generate revenue. The release of Mulan, as well as the second season of the popular series The Mandalorian, should attract and help retain subscribers in the second half of the year.
Hulu has 35.5 million paying viewers, up from 32.1 million in the previous quarter and 27.9 million in the prior-year period. Importantly, the average revenue per user is much higher for Hulu ($11.39) than it is for Disney+ ($4.62). Hulu is gaining traction, in part because of the surge in demand for in-home entertainment during the pandemic and partly because Disney offers the service to U.S. customers in a bundle with Disney+ and ESPN+ for $12.99 per month.
The company's streaming services are not yet profitable, but the robust subscriber growth led management to commit to a new streaming offering that will roll out internationally in fiscal 2021.
What this means for investors
Disney is among the many companies reeling from the fallout of the pandemic. The House of Mouse is not likely to be at full strength until there is a vaccine or other treatment for the novel coronavirus. However, it can continue to build out its streaming offerings, control costs, and responsibly allow visitors at its parks to the extent permitted by local governments.
Netflix, a pure-play streaming company, is trading at 68 times forward earnings. Before the onset of the pandemic, Disney was regularly selling at a forward P/E of around 25. As Disney continues to build out its streaming services, and they become a larger portion of the business, its possible the stock's valuation will climb closer to that of Netflix. If you have a long-term investment horizon, then Disney stock is a buy at current prices.
10 stocks we like better than The Walt Disney Company
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and The Walt Disney Company wasn't one of them! That's right -- they think these 10 stocks are even better buys.
That trend isn't a surprise given the stay-at-home mandates and advisories during the crisis, but one well-known streaming brand seems to be missing the party. Walt Disney's (NYSE:DIS) Hulu, born as a joint venture of the major broadcasters, has long lagged Netflix and Amazon Prime in subscribers, even though the service has a slate of strong content -- it offers television programs straight from the broadcast networks, and has taken home an Emmy award for outstanding drama for The Handmaid's Tale, something Netflix has yet to accomplish. Its longtime status as a joint venture made it something of a forgotten stepchild in the streaming industry, but that was supposed to change when Disney took majority control with its Fox deal last year.
Former Disney CEO Bob Iger touted the potential of Hulu, and planned to infuse it with new original programming and launch the service internationally. He also liked the service's appeal to young adults, which advertisers favor.
However, more than a year after the Fox acquisition, Hulu is starting to look forgotten again. In its recent earnings call, Disney announced that it would launch an international streaming service under Star, an Indian TV brand it acquired in the Fox deal, rather than Hulu. And Hulu's growth has been underwhelming during the pandemic, especially considering we're in a streaming boom.
The streaming service, which is only available in the U.S., added 5.1 million subscribers in the first half of the year, growing from 30.4 million to 35.5 million. That figure includes ad and ad-free tiers of Hulu, as well as subscribers to Disney's recently launched bundle of Disney+, ESPN+, and Hulu, and Live TV packages that come with Hulu. It's not necessarily bad -- Netflix saw similar subscriber growth in the U.S. in the first half of the year, despite having about double the market penetration of Hulu. But Hulu seems to have missed its best opportunity to pick up market share, and with the pull-forward effect from the pandemic, subscriber growth is likely to slow substantially now.
What's happening with Hulu? Here are a few explanations.
IMAGE SOURCE: HULU.
Disney+ has stolen the show
Disney+ has become the juggernaut in Disney's streaming arsenal. The service has brought in more than 60 million members since its launch last November, and it's naturally where Disney is investing most of its streaming resources. It's the platform that is hosting highly anticipated releases like Hamilton and Beyonce's Black is King, and will continue to get that kind of marquee content.
The platform has shattered the company's expectations, as management originally forecast it to reach 60 million-90 million subscribers globally by 2024. It hit that range in less than seven months.
But Disney+'s success leaves an even greater question mark hanging above Hulu, as Disney seems to be getting a better return on its investment and overall brand lift from Disney+, a global platform, rather than Hulu, which is only available in the U.S., and whose brand identity seems muddled.
Disney restructured Hulu at the beginning of the year, making what was an independently operating business a cog in Disney's direct-to-consumer segment. Among the changes was the departure of Hulu's CEO and the loss of Marvel shows on Hulu that moved to Disney+. As part of Disney's larger direct-to-consumer business now, Hulu is unlikely to get the resources and attention that Disney+ does, increasing its chances of underperforming.
It won't play internationally
Earlier this year, Iger said that Hulu would likely launch internationally next year; however, with the plans to make Star its new international streaming service, the prospect of Hulu going abroad now seems dubious. Launching two separate streaming services on top of Disney+, which is still expanding around the world, just doesn't make sense. And comments from CEO Bob Chapek on the earnings call seemed to put the kibosh on any kind of Hulu International.
Chapek explained on the earnings call that Hulu aggregates third-party content, while the Star service will host Disney-owned content from ABC Studios, Fox TV, FX, and other such sources. Chapek also added, "And Hulu also, I must say, has no brand awareness outside of the U.S., and nor does Hulu have any content that's been licensed to it internationally." That shows that Disney would essentially be starting from scratch if it took Hulu outside of the U.S. Additionally, Hulu's ad business won't transition easily to international markets.
Looking at those reasons as well as Star's strength in India, it's clear why Disney is elevating that brand and not Hulu.
Is it giving up on Hulu?
Hulu was launched in 2008, but the brand has been a perennial money loser. It was expected to lose $1.5 billion last year, though now that it's part of Disney its results are included in the direct-to-consumer segment and not broken out on an individual business.
Hulu has a number of assets, including a strong advertising business, a much higher average revenue per user than Disney+, and a broad content slate, but the brand exists in a corporate no-man's land. Disney has agreed to take full control of Hulu in 2024, buying out Comcast's stake for at least $5.8 billion, but its future seems uncertain after the breakout growth at Disney+ and the Star announcement.
With Hulu's growth likely to plateau following the lockdown period, Disney may want to consider other options for the tangential streaming service, such as selling it or combining it with a premium version of Disney+. As it stands now, carrying the loss-generating business with no significant plans to invest in it or expand it looks like a mistake.
10 stocks we like better than The Walt Disney Company
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and The Walt Disney Company wasn't one of them! That's right -- they think these 10 stocks are even better buys.
See the 10 stocks
*Stock Advisor returns as of August 1, 2020
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2022 $1920 calls on Amazon, long January 2021 $60 calls on Walt Disney, short October 2020 $125 calls on Walt Disney, and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
5 Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true.
And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share!
You can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Click here to learn more.
Learn more
Motley Fool Returns
STOCK ADVISORS&P 500
493%101%
Stock Advisor launched in February of 2002. Returns as of 08/10/2020.Join Stock Advisor
Cumulative Growth of a $10,000 Investment in Stock AdvisorCalculated by Time-Weighted Return
STOCKS
The Walt Disney Company
NYSE:DIS
$129.93
down
$0.89
(-0.68%)
Netflix, Inc.
NASDAQ:NFLX
$494.73
down
$-14.35
(-2.82%)
CMCS.A
Comcast Corporation
NASDAQ:CMCS.A
$40.72
up
$0.21
(0.52%)
Amazon.com, Inc.
NASDAQ:AMZN
$3,167.46
down
$-57.54
(-1.78%)
RELATED ARTICLES
This Changes Everything for Disney
Disney's Streaming Strategy Is Paying Huge Dividends
Why Doesn't Disney Sell a Stand-alone Streaming Version of ESPN?
2 Top Robinhood Stocks to Buy in August
Despite Incredible Growth, Disney's Streaming Business Remains Unprofitable
Parks Are Down, but Streaming Is Up -- Is Disney Stock a Buy?
The Nov. 2019 debut of Disney+ could not have had better timing.
Parkev Tatevosian
(TMFParkev)
Aug 7, 2020 at 9:10AM
Author Bio
Disney (NYSE:DIS) recently closed out what has been perhaps its most challenging quarter ever. The impacts of COVID-19 were felt in every segment of its operations. However, the effects were not all negative. Nevertheless, the company is relieved to put what is hopefully the worst of the pandemic behind it.
In the current phase of the outbreak, The House of Mouse was able to reopen some of its parks and restart some content production. Let's take a closer look at the state of its parks and streaming services in the second half of 2020.
IMAGE SOURCE: GETTY IMAGES.
Parks are opening but not at full capacity
The coronavirus pandemic hurt the company in a variety of ways, but perhaps none was worse than having to shut down its theme parks. Wrapped up into its parks, experiences, and products division, that segment contributed 38% of revenue in fiscal 2019, but its share of the top line has declined to 27% this year. Park closures resulted in an adverse impact of $3.5 billion on operating income for the segment during the quarter.
Worse, the reopening of Walt Disney World in Florida is not going as well as management expected. A resurgence of coronavirus cases in the region is causing people to worry about venturing out, leading to lower attendance at the park. The fate of these theme parks relies heavily on how safe people feel, and it's unlikely that the business will go back to pre-pandemic levels of attendance until there is an effective remedy to the virus.
Still, Disney does not need the parks to be at full throttle to benefit from reopenings. Discussing profitability for Disney World at reduced capacity, CFO Christine McCarthy said, "Right now, it's not as high as we had expected, but we're still in the net positive contribution level." The company has begun a phased reopening of its parks in Shanghai, Paris, Tokyo, and Orlando.
DISNEY+ SURPASSES 60 MILLION SUBSCRIBERS. IMAGE SOURCE: DISNEY.
Disney+ and Hulu have come to the rescue during the pandemic
The one bright spot for the company during the pandemic has been the performance of its direct-to-consumer streaming services, which have combined to reach over 100 million paying subscribers.
As of its latest update on Aug. 4, Disney+ has 60.5 million subscribers. The company isn't finished expanding internationally -- Disney+ will be available in the Nordics, Belgium, Luxembourg, Portugal, Indonesia, and Latin America by November. To give you an idea of the opportunity in those markets, Netflix had 36 million subscribers in Latin America at the end of its second quarter, and the population of Indonesia is 275 million.
Additionally, the company announced during the third-quarter earnings call that it will release the potential blockbuster film Mulan directly to its Disney+ platform on Sept. 4. Subscribers will be able to purchase the film for $29.99. The company expects the offering to attract new members to the service as well as generate revenue. The release of Mulan, as well as the second season of the popular series The Mandalorian, should attract and help retain subscribers in the second half of the year.
Hulu has 35.5 million paying viewers, up from 32.1 million in the previous quarter and 27.9 million in the prior-year period. Importantly, the average revenue per user is much higher for Hulu ($11.39) than it is for Disney+ ($4.62). Hulu is gaining traction, in part because of the surge in demand for in-home entertainment during the pandemic and partly because Disney offers the service to U.S. customers in a bundle with Disney+ and ESPN+ for $12.99 per month.
The company's streaming services are not yet profitable, but the robust subscriber growth led management to commit to a new streaming offering that will roll out internationally in fiscal 2021.
What this means for investors
Disney is among the many companies reeling from the fallout of the pandemic. The House of Mouse is not likely to be at full strength until there is a vaccine or other treatment for the novel coronavirus. However, it can continue to build out its streaming offerings, control costs, and responsibly allow visitors at its parks to the extent permitted by local governments.
Netflix, a pure-play streaming company, is trading at 68 times forward earnings. Before the onset of the pandemic, Disney was regularly selling at a forward P/E of around 25. As Disney continues to build out its streaming services, and they become a larger portion of the business, its possible the stock's valuation will climb closer to that of Netflix. If you have a long-term investment horizon, then Disney stock is a buy at current prices.
10 stocks we like better than The Walt Disney Company
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and The Walt Disney Company wasn't one of them! That's right -- they think these 10 stocks are even better buys.
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