Insights

2 Bright Green Flags for Disney’s Future

Walt Disney (NYSE: DIS) took a hard hit at the pandemic’s onset, as it was temporarily forced to lock the turnstiles at all its theme parks. Closures across its various in-person entertainment offerings contributed to overall revenue falling in 2020. At the same time, social distancing protocols that year created an ideal situation for its newly launched flagship streaming service, Disney+, to thrive. 

Efforts to get the pandemic under control have met with some success (at least in the U.S. and other developed nations) and effective vaccines are being administered worldwide. That has allowed for several economies to re-open and countries to return to some semblance of normalcy. This has allowed Disney’s theme parks to do better than ever in 2022.

The brightening future for Disney’s streaming service and its theme parks are two bright green flags for the company going forward. Let me explain. 

1. Theme parks are better than ever

In its most recent quarter, which ended on April 2, Disney’s reported revenue in its theme park segment rose to $6.6 billion. That was more than double the $3.2 billion it earned in the same quarter in the prior year. Unsurprisingly, growing revenue increased operating income to $1.7 billion from a loss of $406 million in the same quarter in the preceding year.

DIS Revenue (Quarterly) data by YCharts.

During the lockdowns in 2020, Disney made adjustments to how the theme parks operate and it added new attractions and features. This has led to increased customer spending, convenience, and profitability as the parks re-opened. It improved its digital reservation system, which allows the company to manage attendance better. Additionally, Disney created a mobile ordering system for restaurants, stores, and concession stands throughout the theme parks, reducing staffing needs. 

Those moves, along with plenty of pent-up demand from consumers, boosted per-capita spending at its theme parks by 40% when compared to the same quarter in 2019. 

2. Disney+ continues to perform

Disney+ launched in November 2019, just a few months before worldwide economic lockdowns went into effect. The service has grown to reach 138 million subscribers as of April 2. Initially, Disney+ developed on the back of soaring consumer demand for at-home entertainment during the pandemic. But it also eventually suffered as pandemic-related slowdowns limited postponed its content development efforts and delayed the release of some content intended to entice more subscribers to sign up. Many of those delays have finally been resolved, and Disney expects to have a robust slate of content available for release on the service for the rest of this year. Between its various film and TV studios, Disney expects to spend $32 billion on content for the entire organization, a large portion of which will end up on Disney+.

That can partly explain why management expects subscriber growth in the year’s second half to surpass that of the first half. A few more catalysts are fueling that optimism. Disney management has said it plans to launch an ad-supported, lower-priced tier in the U.S. this year. And by the end of the year, Disney+ should be available in 53 more countries.

By fiscal 2024, Disney forecasts the service will have between 230 million and 260 million subscribers, an estimated 100 million increase from its current total. Given the popularity of its content around the world, its growth is unlikely to stop there.

DIS PS Ratio data by YCharts.

Is now a good time to buy Disney stock?

The market has been responding to the short-term headwinds Disney is working to resolve as well as the broader market sell-off so far in 2022 and the stock is down considerably off its highs set in early 2021. Now seems like an excellent opportunity for investors to buy Disney’s stock before the bright green flags become widely apparent. 

Parkev Tatevosian has positions in Walt Disney and has the following options: long January 2024 $105 calls on Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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