After getting stuck at the $130 level for a few months, Disney (NYSE:DIS) stock is hot again. Markets are betting that the strong sign-up rates for Disney+ streaming will continue. Disney will clearly take a big financial hit, in the billion-dollar range, with the service. So, with DIS stock double that of NFLX (NASDAQ:NFLX) stock by market cap, investors should exercise caution on the former.
Disney signed up 10 million subscribers on its opening day yet two concerns remain. First, the new subscribers may see a few movies and TV shows they waited for.
But then they may unsubscribe from the service afterward. Sustaining the cheap monthly rate is a second worry for investors. At $7.99, Disney is offering streaming services at a drastically reduced discount over the Netflix service.
Netflix need only wait for Disney to raise prices and risk losing subscribers. It will keep raising debt and producing more high-quality, original content to keep its subscribers happy. Disney will end up with negative cash flows mounting as subscription growth slows.
At a forward P/E approaching 25 times, DIS stock little additional upside. Next month, a strong Star Wars release may justify the stock’s latest double-digit returns. After that, anything may happen with DIS stock.
