Disney: A Streaming Future?

08/22/2017 2:50 am EST

Focus: CONSUMER

Nate Pile

Editor, Nate’s Notes and The Wagmore Advisory Letter

After studying the problem for quite some time now, Disney (DIS) has finally made an announcement about how it plans to address the whole “cord cutting” trend that has been going on in the cable industry for a number of years now, notes Nate Pile, editor of Nate's Notes.


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CEO Bob Iger disclosed that not only will Disney be increasing the size of its investment in BAMTech, a streaming media company, but it will also be tapping into the technologies that have been developed by BAMTech to create its own direct-to-consumer streaming business.

Starting in 2019, many of Disney’s titles will be pulled from Netflix (NFLX) and offered through this new service instead (as will ESPN and associated revenue streams — video games, for example — that Disney hopes to incorporate into its vision of “sports broadcasting” going forward).

Not surprisingly, Disney’s stock fell fairly sharply as well as investors came to grips with the recognition that there will be a substantial amount of investment required on the part of Disney to make the new operation a success.

On the one hand, as a long-term investor, I am completely thrilled that the company has finally pulled the trigger on outlining and implementing a plan for a problem that has been festering for a while now.

And though what Disney is attempting to do is certainly not trivial, if there is any company around with the intellectual property, the personnel, the financial wherewithal, and a proven history of delivering on big projects, it’s Disney — especially with Bob Iger still at the helm.

Disney is not likely to ever be a “ten-bagger” from current prices; but it is a very well run company doing business in a lot of different areas with the potential to grow at a reasonable rate while also throwing off some cash via its dividend.

The stock also  offers some solid diversification away from the smaller and more speculative tech and biotech stocks that tend to dominate our portfolio.

To summarize, I am not worried about the direction Disney has decided to go in building out its own streaming service; it has been clear for a while now that “change is coming” and it is great to see Disney charging forward with a fairly bold vision.

The chartist in me cannot help but be at least a tiny bit concerned that, in response to the news, the stock failed to hold above $103. Indeed, if the stock declined through the $98-level, I would start to become more concerned that a bear market may be getting underway for the stock.

As such, I have to admit that I would rather wait and see what the stock does next before committing more capital to the story. That being said, if you do not yet have a “full” position in Disney — as we do in both of our model portfolios — I  consider the current price very attractive one for long-term investors.

And, as counterintuitive as it may feel, you are also encouraged to "buy on strength" and become even more aggressive if you see the stock start to head higher again.

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