Disney Stock Predictions: DisneyLife Is A Major Future Tailwind For Disney

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Disney Stock Predictions: Summary

  • Disney has tapped Alibaba as its local partner in launching its over-the-top service DisneyDisneyLife in China.
  • DisneyLife is like Netflix. It is also a premium video streaming service.
  • Disney’s future growth prospect is better when it can compete with Netflix.
  • China is an important emerging market for pay-TV streaming services.

 

Disney’s (DIS) stock price shot up more than 2.5% yesterday. However, DIS still looks attractive because this ticker still trades notably lower from its $122.08 52-week high. The release of Star Wars ‘The Force Awakens’ movie will likely break first-week theater sales records. The latest Star Wars franchise film is expected to deliver an opening weekend gross of $200-$220 million.

I expect ‘The Force Awakens’ to help Disney’s stock move up near the $120++ price levels again before 2015 is over. Aside from movie theater sales, Disney will reap royalty fees from merchandise sales associated with ‘The Force Awakens.’

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(Source: Google Finance)

Another reason for my bullish outlook for Disney is the recent report of its new partnership with Alibaba (BABA). The on-demand streaming service DisneyLife will launch in China with the help of Alibaba’s subsidiary, Wasu Media Network. DisneyLife is Disney’s over-the-top (OTT) streaming video service first launched in the UK last month. It offers unlimited video streaming over 3G/4G connection. DisneyLife subscriptions could also be used in up to 10 devices.

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Going forward, Disney’s foray into creating a mini-Netflix (NLFX) for its vast library of content is a great long-term strategy. The Star Wars, Disney, and Marvel-related assets should not only be monetized through periodic releases of movies. They should also be monetized through Disney’s in-house streaming services.

China Is Ripe For Subscription-Based Video Streaming

 Alibaba recently launched its own video streaming service, the Tmall Box Office, in China. This goes to show that the Middle Kingdom is now ripe for a Netflix-style of entertainment delivery. China touts 600 million of potential customers for premium video streaming. The Chinese online video market is worth $5.9 billion this year. DisneyLife should be one of the future beneficiaries of this fast-growing market.

Disney’s decision to team up with Alibaba means the Mickey Mouse empire will get to ride the booming online video industry in China. It also confirms that Netflix is unlikely to get any Disney-owned content for its planned expansion in China. Disney and Alibaba, not Netflix, will be the one monetizing the Disney-related video/music assets in the Middle Kingdom starting next year.

The universal appeal of Disney and Marvel characters also has a strong following in China. I also believe that DisneyLife’s subscription will likely be near the $6.10 monthly fee of Tmall Box Office. Alibaba’s help also likely required Disney to offer DisneyLife to be affordable enough for most Chinese customers.

Disney did right in choosing China as its second market for DisneyLife. Just like the United Kingdom, the Middle Kingdom has a very large population of smartphone users. In fact, I see DisneyLife probably getting more subscribers in China than in the U.K. More than half of the 1.4 billion Chinese people already have access to affordable fixed and wireless internet.

If Disney and Wasu get to recruit 30 million Chinese subscribers, the economic benefit to Disney could be at least $100 million in monthly recurring revenue. This is just from DisneyLife’s China operations.

30 million x $6/month = $180 million

$100 million to Disney

$80 million to Wasu/Alibaba

DisneyLife is Also A Distribution Channel for Mobile Apps

One strong selling point of DisneyLife will be the free premium app/game download per month offered to subscribers. This is something that Netflix or Alibaba has yet to offer in their streaming services. DisneyLife is more than just about movies and TV shows. It is also a channel for Disney to increase customers for its mobile apps.

Disney is one of the top global publishers of mobile games. However, it has yet to crack the lucrative Chinese market. Promoting DisneyLife through Alibaba could help Disney get a captured audience for its mobile apps in China. Disney’s Chinese strategy should not only be limited to movies and TV shows. The Middle Kingdom is now the biggest market for mobile games. Disney has solid franchises in Star Wars and Marvel characters to develop great mobile games.

My Takeaway

I opine that Disney, as an owner of one of the word’s largest video/TV show library, should not rely on third-party companies like Netflix. Instead of licensing its assets, Disney should develop its own global-wide subscription-based streaming service. DisneyLife should also be expanded to Japan, India, and other Asian countries. This over-the-top service has the potential to contribute $1-$5 billion in new annual recurring revenue to Disney.

My Buy rating for Disney is in line with the bullish algorithmic forecasts of I Know First for DIS. I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.

Having explained how I Know First’s algorithm works, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. If you look at the chart below, market trends are saying that DIS’ price will like go up within one year. The one-month, 3-month, and one-year algorithmic analysis is screaming positive Buy signals for Disney.

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I predict that Disney’s stock price will again breach the $120 level in 2016. The long-term indicators from technical charts and moving averages also support the very positive algorithmic forecasts of I Know First for DIS. Study the charts below from Investing.com… all the indicators are also screaming a Buy for Disney now.

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