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What’s Next For Disney’s Streaming Entertainment Business?

Jon Phillip

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entertainment stock

Walt Disney (NYSE: DIS) is going through a big transition. The bigger focus on direct-to-consumer streaming video services brought the company to readjust its business to break out direct-to-consumer operations. Disney will have three major streaming services next year including Hulu, ESPN+, and a Disney-branded service launching late next year.

As Disney gets more of its content for itself, it will naturally see a decrease in licensing revenue from third parties. Disney will see a big impact when its movie studio output agreement with Netflix (NASDAQ: NFLX) begins to fall off in 2019. Netflix will keep the rights to many releases through 2019. Neither party has said how much Netflix is paying to license Disney’s theatrical releases.

The decrease in licensing revenue should show up in the Studio Entertainment segment. The effect could be hard to decipher for investors, though, as Studio Entertainment revenue is very dependent on box office performance of its output.

Licensing revenue is some of the highest-margin revenue Disney can generate. Disney has called out its TV/SVOD [subscription video on demand] distribution as a reason for operating income growth in its quarterly results. Of course, licensing revenue comes at the expense of home video sales.

Disney still spends a lot on content. ESPN as a standalone expends more than Netflix on its content, which includes extremely high-cost sports rights. The issue Disney faces right now, though, is that a lot of that content is still under licensing and distribution agreements with other channels. That said, CEO Bob Iger said he doesn’t expect a Netflix-level increase in spending.

Disney is spending money on several original series based on popular film franchises for its Disney-branded service next year. It’s creating a Star Wars series, two series based on Marvel characters — Loki and Scarlet Witch — a Monsters Inc. series, and a High School Musical series.

Long-term investors shouldn’t see a significant increase in content spending, but there will be a short-term bump in expenses. As Disney can transition more of its licensed content to its direct-to-consumer platforms, it should see content spending return to normal levels.

As far as the long-term potential of moving to a direct-to-consumer distribution model is concerned, it could create much greater profits than licensing content. There’s more risk, too. If Disney can’t create an audience for its streaming services, it could end up producing less revenue at a greater cost than licensing. But its early results are very encouraging for investors, and they indicate that the negative impact on profits should be a short-term situation.

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Entertainment

The Roller Coaster Ride On Shutterfly (SFLY) Stock

Joe Samuel

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shutterfly acquisition

Shutterfly (SFLY) has been one of the most important companies in the photofinishing industry with the range of services that it offered. Over the past twenty years, the company had been involved in services like digital photo storage, customized merchandise, and print processing among others. However, the company is now all set to make an exit from the business that they have built up over the years by selling it to Apollo Global Management.

Acquisition News

Last week, the company announced that it had accepted the offer that had been made by Apollo and some experts claim that the investors in Shutterfly might not be entirely happy with the final payout.

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Apollo is going to fork out $51 per share for the acquisition and that might not make many investors happy, considering the fact that it is just 1.5% higher than the closing price of the Shutterfly stock on Monday. However, there is another way of looking at it.

The news of a potential acquisition by Apollo had first been reported back on 23 April and it was then that the stock started climbing. If the price prior to that surge is taken into consideration, then the shareholders are looking at a 31% premium on their shares.

What Are Investors Saying?

That being said, the investors still have a lot to be upset about, since Shutterfly stock had been trading at $100 on June 5 last year. However, it is quite clear that the price offered by Apollo is the best deal since no other bidder has come forward with a counteroffer. Apollo will be paying out $2.7 billion for the acquisition.

Shutterfly’s business started showing weaknesses towards the end of last year and the company’s acquisitions at the time did not really make a big dent in the revenues. Although the business has shown weaknesses, it is important to note that Apollo clearly sees a future in the company; otherwise, it would not have forked out $2.7 billion for the company.

While the company will continue to be in business, it has been a pretty harrowing experience for people who had invested in the company.

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Entertainment

Amazon’s Ad-Biz On A Roll Amid Increased Competition

Joe Samuel

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amazon last mile

Amazon.com, Inc. (AMZN), the giant e-marketer, the third-largest digital advertisement seller seems to be on the way of making it to the top. The Q1 advertising revenue, although not specifically mentioned in the annual reports, stood at $2.72 billion.

There has been a 36% increase in the income generated through these ad services from the previous year. However, the growth rate seems to be increasing at a diminishing rate, with last year’s quarterly growth figuring to 95% to 138% and revenues 57% more than that in 2016. But, the declining growth rate does not imply that the market might fall for Amazon.

Tough Competition For Google And Facebook

While on one hand, the Amazon ad-biz is soaring high, the same cannot be said for Google (GOOG). The company along with Alphabet, its parent, saw its all-time low growth rate of 15% in 2019 Q1 since 2016. This might be a result of Amazon’s expanding market share. Even though Amazon still holds little market share as compared to the top-two giants – Google and Facebook (FB) – but, it seems to be gaining a popular reputation among the CPG retailers. With more and more retailers keeping an increased budget for advertising with Amazon, things sure are looking bright for the company.

[Read More] This Company Has Engaged In A Work Order Contract with Amazon.com Inc. For Metro Vancouver; Full Report

With Amazon being a shopping site as well, the consumers find it quicker and easier to search for the desired product and buy it on just a few clicks, even less with saved bank account details. Not to forget the exceptional heavy discounts and offers provided by Amazon, sparsely luring in customers. These incline retailers all the more to advertise their products on Amazon.

The Digital Age

The Amazon advertisement business seems to be quite appealing in today’s digitalization age. Google and Facebook are at the risk of losing their business to this giant. But, this does not mean that Google is at a stance of losing its prime position. Google, with its large customer base, unlike Amazon, incorporates not only a few select retailers but other business scopes as well, like that of financial service providers, realtors, etc. This puts Google a step ahead of Amazon, making it unlikely to be overthrown by the latter.

Facebook, on the other hand, has little to worry about. Its advertising model is quite different than that of Amazon or Google, which has a search-based model. Facebook takes into account the demographics, interests and online habits of its users offering them a wider range of advertisers. But, the biggest threat looms over the traditional advertisement media which might go extinct in time.

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Entertainment

ROKU Stock Up 210% in 2019, Time To Sell?

Joe Samuel

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roku stock

Roku (ROKU), which is one of the world’s largest online media players, has grown at a breakneck pace over the past half a decade. Much of Roku’s growth is due to the expansion of online streaming. It is one of the most popular services in the world and it had grown at a much faster clip over the course of 2019 so far.

ROKU Stock Gains 210% So Far In 2019

From the beginning of the year up until last Friday, ROKU stock has surged by as much as 210% and has outperformed the growth in the S&P 500 index which has gained by only 13%. Moreover, the stock made an all-time of $95.10 in Friday’s session.

The primary reason behind the remarkable upsurge has been the growth in the number of users in addition to rising streaming hours and income from each user. However, despite the hyper growth in the company and the stock, ROKU stock went down by as much as 6% in Tuesday’s session. Due to that fall, old worries about the company having grown too fast have resurfaced and there is a compelling case to be made.

Stephens’ Analyst Downgrades to Overweight

An analyst at Stephens named Kyle Evans has stated in a note that the company may have grown too fast and that could create risks for investors in the near term.

The note in question was written by Evans on Tuesday and he stated, “We believe the recent run and higher valuation … combined with raised expectations … creates increased [near term] risk.” He did not lower his 12-month target price of $84 but changed the rating for the stock to overweight from equal weight. Following the drop on Tuesday, the shares were trading at $90.

The analyst stated that the recent rally in the stock may have been impressive but even last year, the stock had nosedived after reporting its earnings for the third quarter. At the time, it went down by as much as 22% and the reason for the decline was the disappointing platform revenue.

Hence, a case is being made that the dizzying highs could just as easily trigger a big selloff if the company underperforms in any of the quarters.

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