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Finance Unwrapped: 8th August to 12th August

This week’s Finance Unwrapped includes top stories from equities and commodities along with entertaining bits to make your weekend reading enjoyable!

Streaming Wars: Disney Just Overtook Netflix

The Walt Disney Company is older than sliced bread. It was established in 1923 by Walt and Roy Disney. As you may know, Disney is responsible for animating and producing timeless stories loved by many. 

But things weren’t as rosy for Walt Disney in 1923. After the launch of a short story – Alice’s Wonderland – Walt Disney filed for bankruptcy! 

Lucky for him, Margaret J. Winkler paid top dollar for the short story and offered Disney a contract for 6 more stories. That’s how the Disney Company was born. 

Walt rushed to his brother Roy, who was suffering from tuberculosis at the time, to co-found the company that is now famous for animating and producing timeless stories. 

Close to a century after the company’s humble beginnings, Disney has a suite of businesses that include content production, distribution, theme parks, cruise lines, and… streaming services!

Why Disney Began a Streaming Service

Picture this – it’s 2017. You’re at home on a weekend. Cable TV is saturated – the same old channels, the old content. But you have other, more fascinating options – there’s Netflix, Amazon Prime, and more.  You weren’t alone. 

Millions of people across the world switched from cable TV to streaming services as the 2010s rolled on. Netflix had 99 million subscribers while Amazon Prime Video was used by 26 million people.

Streaming services were the new cable TV. There was money to be made. That’s why Disney decided to enter the world of streaming in 2017. On paper, Disney had a strong case to make this move. 

First off, Disney had a rich content bank (in-house & licensed) that it could make available on its platform. Furthermore, it had the ability to price its service much more leniently than others due to its strong balance sheet.

Above all, it had family-friendly content that’s popular across ages and the spending power to acquire platforms that already had a healthy user base. That’s what it did. 

In fact, Disney had a distribution deal with Netflix up until 2017 that it subsequently broke off. Fast forward to 2022 – Disney has overtaken Netflix in terms of subscribers.  

Disney Q2 2022 Financials

Disney has 221 million subscribers as per a recent earnings report for Q2 2022. This is the first time in a long time that a streaming service has overtaken Netflix in terms of subscribers. 

This is, in many ways, a sign of things going from bad to worse for Netflix. It reported a loss of close to a million subscribers in the same period, which took its overall subscriber count to 220.7 million. 

Disney’s stock rose by as much as 7% during after-hours trading, shortly after the data was published. While all of this may be a step in the right direction for Disney, there’s a hurdle that it is yet to jump over – declining profits.

Overall profits declined by 32% to ~$1.4 billion.  Let’s take a step back to understand why. Hotstar is one of Disney’s biggest cash cows in the streaming vertical. One of the reasons for this is the IPL. 

Hotstar had exclusive rights to telecast it, which brought in subscribers. But, it recently lost the streaming rights to India’s premier sporting event to Viacom18. 

As a result, Disney’s CFO went on record and stated that the company will lower its subscriber guidance over time. Bear in mind that Disney’s current guidance for Hotstar is 80 million subscribers by the end of fiscal 2024. 

The overall guidance for the entire streaming suite has been lowered to 215-245 million from 230-260 million. How this will turn out to be in the next 5 years remains to be seen. But for now, Netflix has a new competitor. 

Meme of the Week

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Around the Market in 80 Seconds

Stocks

  • ICICI Bank’s market cap crossed Rs. 6 trillion for the first time – it is the 6th biggest company in India by market cap
  • GE Power India’s total revenue dropped to Rs. 520.02 crores Q1 FY2023 from Rs. 551.20 crores same time last year; Loss also shrank to Rs. 59.02 crores from Rs. 114.99 crores year on year
  • Coal India’s net profit grew by 179% in Q1 FY2023; the stock hit a fresh 52-week high soon after on 11-08-2022; Consolidated net profit stood at Rs. 8,834 crores

Commodities

  • The Organization of Petroleum Exporting Countries (OPEC) revealed that it may tone down oil supply by 1.24 million barrels a day in Q3 2023 as it expects oil reserves to tip into a surplus; Crude Oil futures closed at Rs. 7,473.00 a barrel (-0.05%)
  • US inflation outlook has been hawkish this week yet Gold is set for its fourth straight weekly gain; Gold October futures rose by 0.10% during intraday trading  

Your Weekend Entertainment

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Shriram Shekhar

Simplifying trading & investing through meaningful content.

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