Disney+ is changing more than how you access your favorite Disney movies—it’s changing the way investors value the stock.
After announcing 10 million sign-ups for its new streaming service in just a few days (including those that will get the service free for one year through Verizon), the company’s stock popped over 8% to around $148 last week (with trading volumes up exponentially over the 20-day average of 1.53 million shares, according to Bloomberg data). And, analysts say, the new service could change how investors approach Disney’s valuation altogether.
“The valuation methodology has certainly shifted from a next-12-month P/E ratio that really matters for the stock to, increasingly, this Disney+ subscriber number,” Rosenblatt Securities analyst Bernie McTernan tells Fortune. “Frankly, [the subscriber number] is going to be the most important metric for the foreseeable future.”
McTernan, one of Disney’s biggest bulls with a $170 price target for the stock, suggests this strong start is encouraging (“10 million after one day!” he marveled to Fortune), although investors won’t see how many sign-ups actually convert to paying customers for some time yet. At the top range of Disney’s estimates, McTernan estimates they’ll hit 90 million subscribers for Disney+ by the end of 2024.
Disney’s guidance will be much more focused on their new streaming service, he suggests. “Earnings are going to be kind of like Netflix, where what matters is that [subscriber] number,” McTernan says.
Right now Disney—with its ancillary businesses of parks and media networks—is trading at P/E of around 23, while Netflix trades at a pricey 96 times earnings. And that key subscriber number that McTernan maintains will soon be vital for Disney has been a sore point for Netflix recently—in fact, their estimated subscription adds for the U.S. for the 4th quarter are down nearly 60%.
But Disney’s business is still dominated by its parks and resorts business, which comprised the largest portion of the company’s 4th quarter earnings at $6.7 billion (up 8% from the year-ago period). Disney’s media networks business (which includes a variety of networks) generated the second biggest chunk of revenue for the company in the quarter (although operating income for the segment is down 3% from the year-ago period). But it’s streaming that CEO Bob Iger deems “a huge statement about the future of media and entertainment and our continued ability to thrive in this new era,” as he put it during an earnings call.
Disney’s stock is already up over 30% year-to-date, and the company has negative EPS growth estimates for next year. For one, the company estimated in their 4th quarter earnings that continued investment in their direct-to-consumer services, specifically Disney+, would contribute to year-over-year segment operating income loss upwards of $850 million, and the integration of 21st Century Fox may take a 30-cent hit to 1st quarter EPS. So some investors might be wondering if now is really the time to get in on Disney. To wit, the ongoing streaming war—featuring competition from first-mover Netflix and Apple TV+, among others—is certainly creating a crowded field. But on both counts, analysts are optimistic Disney can create some magic.
Disney’s familiar content (including popular franchises like Star Wars and Marvel) and original IP are differentiators that those like McTernan think will help give Disney+ an edge. In fact, according to a recent exclusive Fortune survey, around 1 in 3 users of Netflix, Hulu, and Amazon say they’re likely to subscribe to Disney+. But subscribers aside, Disney’s wide range of businesses give it a bit of a hedge as they enter the burgeoning space.
“[Disney has] the added benefit of generating significant cash flows in the company’s other businesses which means significantly more free cash flows, despite the investment and launch costs/losses for [Disney+],” Moody’s Neil Begley told Fortune in a note.
To that extent, some analysts suggest that, despite Disney’s increase in price over the past year, the stock may have even more room to run. “At $150 [per share], you’re certainly getting some positive value through Disney+ and their direct to consumer products,” McTernan says. “We think this is a great stock to own into year end and into next year as well.”
One thing investors need to watch out for? The acceleration of cord-cutting in 2020, brought on by the bevy of new streaming services. Disney’s streaming play is especially important now as the company is cannibalizing their traditional media networks business (which includes owned and operated networks like ABC and ESPN), McTernan says.
Still, whether or not Disney is able to wave a magic wand and convert their 10 million sign-ups into paying subscribers (or remedy recently-reported potential hacking problems) is yet to be seen.
More must-read stories from Fortune:
—The S&P 500 may be due for a 25% correction, according to historical data
—The 2020 tax brackets are out. What is your rate?
—How “VSCO Girls” are killing makeup sales
—What is “quantitative easing”—and why is everyone so worked up about it?
—A.I. vs. the wolves of Wall Street
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.