(NYSE: $DIS): Disney’s New Dream Amidst a Dreary Landscape

Disney

Disneyland is now set to remain closed for more than a year since the coronavirus pandemic first shut it down in March of 2020. 

The extended closure, along with its other theme park closures globally, has cost Disney (NYSE: DIS) $2.8 billion across the entire business over the last four quarters. The company was forced to fire thousands of workers while also experiencing executive board turnover, with CEO Bob Iger stepping down to make way for Bob Chapek

Park reopening is contingent upon the rate at which the public gets vaccinated. With Orange County at tier 1 level of restrictions – the most restrictive level – it remains unlikely that Disneyland will reopen any time soon. When Disneyland eventually reopens, it will be forced to operate at a reduced capacity to comply with health guidelines. Disneyland has even turned into a vaccination site, having delivered over 100,000 doses so far.

This is what Chapek had to say about the whole ordeal on a recent earnings call:

“In terms of the outlook for the parks for the rest of the year and the capacity, it’s really going to be determined by the rate of vaccination of the public. That seems like the biggest lever that we can have in order to either take the parks that are currently under limited capacity and increase it or open up parks that are currently closed.”

Disney
Disney CEO, Bob Chapek

 

So are there any positives for Disney?

The biggest positive that Disney can take from the past year has been the success of its streaming service, Disney+. The streaming service now has more than 94 million total subscribers, which contributed to recent quarterly earnings of $16.25 billion versus the expected earnings of $15.93 billion

CFO Christine McCarthy has also stated that the company has a target of “100-plus new titles per year.” With a plethora of franchises to harvest ideas from, including the popular Star Wars and Marvel Cinematic Universe, we can expect to see Disney uphold its promise.

Disney is hoping to take advantage of this sky-rocketing demand for streaming with a price increase in the upcoming months. The monthly subscription fee will increase from $6.99 to $7.99. This rate will increase revenue streams for Disney, but it is not high enough where it will turn off consumer demand. 

The company now has more than 146 million subscribers across all of its streaming services, which include ESPN+ and Hulu. Disney has surpassed expectations for the growth of its streaming services, due to the restrictions of the pandemic and can expect to see more growth in this department.

 

What does Disney’s stock price look like?

Like other companies, Disney’s stock price plummeted in the weeks following the mass shutdown. When the country shut down, the price of one share dropped down to $79.07, which was a five-year all-time low for the stock. 

Fast-forward eleven months and the stock is trading at close to an all-time high of $186.44 at the time of writing, although the all-time high of $193.83 was achieved a week earlier. See the chart below to gain a better picture of Disney’s stock price trajectory.

The growth in stock price can be attributed to the success of Disney+ and Disney’s other streaming services. However, Disney+ and Disney as a whole are not profitable – a concern for many analysts. Although they have increased their subscriber count, in the first quarter of the year the company experienced a 28% loss in average revenue per user, along with a $2.6 billion loss to theme park revenue due to the pandemic. 

This revenue drop was one of the main reasons why Disney is looking to increase its streaming prices. The revenue drop is also a result of the Disney+ Hotstar streaming service deal in India and Indonesia, due to Disney’s efforts to globalize their product. To meet the demand of these markets, Disney had to lower their prices, which pulled down the overall average revenue figures. 

However, these figures have had little impact on the growth of Disney’s stock price. This stock price is ultimately based on the high potential that Disney+ has to put out new content on a frequent basis

 

So, is Disney Still a Buy?

There are two camps in the Disney stock battleground: the optimist bullish investor and the cautious on-the-fence investor. 

The optimists base their conclusions on the opportunity for growth; Disney has scored a hit with shows like The Mandalorian and will be sure to score many more hits with the content it pumps out. 1.1 million American households tuned in for the Season 2 finale of the show, and this figure does not even take into account the level of demand that the show creates with its weekly episode drops. 

The lukewarm investors are more hesitant about the stock. These investors are mainly concerned about Disney’s lack of profitability despite all the growth it has achieved. Some forecasts predict that Disney will not be profitable until at least 2023 when all the Disney+ price increases will have occurred globally.

Disney stock is still a valuable addition to your portfolio if you are able to afford the high price. This is a stock for the long-haul, as it will still be some time when you can expect all parks to reopen at full capacity. But the pent-up demand will drive revenue collected from these parks through the roof, especially with the introduction of new attractions such as the Avengers Campus; after all, it has been almost a year since the avid Disney fan has been able to visit these parks, at least in California. 

Disney’s main strength is the amount of intellectual property that it possesses. The amount of content that Disney can put out will ensure that the demand for Disney remains high, and with time, the profitability we hope to see will come with this wave of demand. So for now, Disney is still set on realizing the dreams of their many fans; they just have to adapt their plans a little bit. 

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Anish Ravilla

Anish Ravilla is a first-year student majoring in Statistics and minoring in Cognitive Science at University of California, Los Angeles He is also the Vice President of Editorial for the Internet Bull Report at UCLA. He is fascinated by the artificial intelligence field and its branching industries. Along with IBR, Anish is a member of the UCLA Community Service Commission, the public health club PILOT@UCLA, and the Undergraduate Mathematics Students Association. In his spare time, you can find him doing calisthenics workouts, playing guitar, playing Spikeball at the beach, and watching historical fiction shows.