Most of Walt Disney Co.’s (NYSE: DIS) businesses are in shambles. The COVID-19 pandemic has crippled its huge theme park business and delayed the release of films from its studios, which are among the world’s largest.

The only part of Disney that has posted strong growth, and likely will continue to do so, is Disney+, its feature video streaming service. Its eventual success rests with its ability to catch Netflix Inc. (NASDAQ: NFLX), the industry leader, in subscriber count. Netflix currently has over 180 million subscribers around the world.

Disney’s Overwhelming Problems

Disney, which is nearly a century old, is among the world’s largest entertainment giants, with products that are distributed around the world. The heart of these businesses is its Parks, Experience and Products division, its film operations and its Media Networks unit. Its streaming business is less than a year old.

Disney’s most recent earnings numbers were spotty, but its forecast for the balance of the year was worse.

Disney’s total revenue rose 21% in the quarter that ended March 30 to $18 billion. A portion of this was due to its $71 billion buyout of assets from 21st Century Fox. The deal closed at the end of the March quarter last year.

The big beneficiary of the Fox deal was Disney’s Media Networks division. These businesses include HBO, Turner, ESPN, FX, National Geographic and ABC. They brought in $7.3 billion last quarter, up 28% year over year.

Disney’s studio entertainment operations took the top place in market share among U.S. studios in 2019. Disney has 20% of the industry’s revenue, with smash hits such as “Avengers: Endgame,” “The Lion King,” “Toy Story 4,” “Frozen II” and “Star Wars: The Rise of Skywalker.” One reason Wall Street has liked Disney’s stock is that many of these movies are part of a franchise that can produce several movies using the same characters.

The threat to the Disney studio business is that people may not return to theaters in the short term, not until midyear or much later. Disney’s studio business posted revenue of $2.5 billion in the past quarter, up 18%.

The Heart of Disney May Not Recover

The Disney parks business brought in 31% of Disney’s revenue in the most recent quarter. That figure was $5.5 billion, down 10%. The flagship of these parks is Disney World.

Disney also has locations in China, Japan and France. Some of these include theme park cruises as part of their attractions. However, the company’s cruise ships are completely shuttered.

Disney closed all its parks because of the pandemic. It desperately needs those parks open to have revenue return to anywhere close to 2019 figures.

The Hope of Disney+

To size the potential of Disney+, the company’s streaming service, investors need to look at Netflix, the industry leader. Note that the market for these services is crowded, which makes market share an issue.

In the most recent quarter, Netflix had revenue of $5.8 billion. That was up 28% from the same period a year earlier. Global streaming paid subscriptions hit 183 million.

In its letter to shareholders, management pointed out the advantages of running a business when tens of millions of people cannot leave their homes. It said: “At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term.”

Disney+ also has to contend with the subscriber base of Amazon.com Inc.’s (NASDAQ: AMZN) Prime business. Amazon does not disclose its subscriber numbers, but it is estimated that the figure is over 100 million.

The streaming media business also has become crowded with well-funded newcomers Apple TV+, HBO Max and Peacock, an NBCUniversal product.

One challenge of premium streaming media is the cost of content. Netflix originally licensed films for studios. Now, it makes many of its own to draw and keep customers. Amazon also has a huge budget for original content, estimated to be in the hundreds of millions of dollars a year.

HBO can draw on its library of HBO programs and shows from other Turner properties, which are part of AT&T Inc.’s (NYSE: T) buyout of Time Warner. NBC also has a large vault of programs it has produced over the years.

The Disney+ Advantage

Disney also has built up a vault of TV shows and feature films over the decades, including those acquired via mergers and acquisitions. This includes films from Pixar, Marvel and Star Wars, as well as content from National Geographic and ESPN. Disney also bought Hulu, which has its own library of films.

It would be hard to imagine a streaming service with this arsenal of video content that appeals to a broad audience. Disney+ did something smart to pick up market share.

The service is priced at $6.99 a month, which is well below Netflix and Amazon.

The pandemic has increased the Disney+ subscriber count. The service launched in November. By April 8, its count topped 50 million. Several analysts had set mid-2022 as the date by which Disney+ would pass this mark.

When analysts look at Disney+, they look at Netflix’s likely annual revenue of $25 billion. Netflix has a market value of $200 billion. That is larger than Disney’s, a sign of how valuable streaming is.

Can Disney Stock Rebound?

For over a decade, under former CEO Bob Iger, Disney was considered one of the great blue-chip stocks. It routinely outperformed the stock market. Its bottom line made it among the safest large-cap stocks to buy.

In terms of price strength, year to date, Disney has underperformed the market. Its shares are down 31%, while the S&P 500 is off 15%.

It is very hard to make the case that Disney’s theme park business will return for months, or even years. If COVID-19 continues to circulate through the population in Disney’s major markets, foot traffic may never return to previous levels.

When movie theaters will open is another unknown. If they stay shut for the long term, Disney has yet another problem.

However, Disney+ is already growing ahead of schedule. It has a content lineup that makes it popular. Disney investors can look at the market valuation of Netflix and hope.

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