Disney’s (DIS - Free Report) is well known among investors for its ambition to dominate the rapidly-growing video streaming market. The company is hell-bent on making the upcoming Disney+ streaming service a hit and thus, is now contemplating to get rid of non-core businesses that might mar its path to success.
Per a Bloomberg report, Disney is planning to divest its video game, FoxNext, which was part of the entertainment assets it got from the 21st Century Fox acquisition. Other assets the company might think of divesting includes a stake in the sports betting site, DraftKings Inc.
Notably, as required by the regulators, Disney sold the 22 regional sports networks (RSNs) it got from the Fox acquisition. Sinclair Broadcasting (SBGI - Free Report) bought 21 of these RSNs, while a group of investors, including Sinclair and Amazon, bought the big YES Network (Yankees Entertainment and Sports Network).
Disney’s shares have returned 24.2% year to date compared with the industry’s growth of 30%.
Video Games: A Hard Nut to Crack for Disney
FoxNext develops free-to-play mobile games and primarily generates revenues from in-game purchases. However, Disney is reluctant to re-enter the highly competitive mobile gaming market, currently crowded by the likes of Zynga, Electronic Arts (EA - Free Report) , Activision (ATVI - Free Report) division King Digital, Supercell, Tencent, Nintendo and others.
Disney’s earlier foray into the gaming space had not been fruitful. The company discontinued its Infinity line of toys and games, game studios and online game Club Penguin in 2016 due to lack of profitability.
However, its strategy of licensing IPs, including characters and brands, to video game developers like EA (set to launch Star Wars game in November) has driven its top line.
In the last reported quarter, Parks, Experiences and Products segment revenues (32.5% of revenues) increased 7.2% year over year to $6.58 billion.
Disney’s Streaming Investments to Hurt Profitability
Disney is set to launch (Nov 12) Disney+ at $6.99 a month and a Disney+, ESPN+ and Hulu bundle for $12.99 a month. The company is banking on its latest box-office hits like Avengers: Endgame to attract subscribers. Disney aims to add 12 million subscribers by 2020-end.
Per a CNET article, Disney+ will offer users four simultaneous streams, including videos with 4K, UHD and HD picture quality, and seven different user profiles at no extra cost.
However, Disney’s profitability is expected to be hurt by investments regarding the consolidation of Hulu, and ongoing investments in ESPN+ and Disney+.
For fourth-quarter fiscal 2019, Disney expects the Direct-to-consumer & International segment to report roughly $900 million in operating losses, which represents an increase of almost $560 million year over year.
Disney currently has a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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