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The parks are reopening, and Disney+ is closing in on 100 million subscribers — but is DIS a buy? Let’s find out in this Disney Stock Analysis.
What is Disney?
You obviously know what Disney is, but we think there’s value in painting a brief history of the company so you can see where it’s been and where it’s going.
The Walt Disney Company, also “Disney”, is an American diversified multinational mass media and entertainment company (yes, all six adjectives are necessary) that operates or creates theme parks, resorts, cruises, movies, TV programs, music, and much more.
The company was founded in 1923 and has been entertaining the world through the power of unparalleled storytelling ever since.
Disney is known for its animated movies and parks, but few are aware of its reach in entertainment. It currently owns (or has a majority stake in):
- 20th Century Fox
- Fox Sports
- National Geographic
Disney’s aggressive growth was driven by its former CEO, Bob Iger, who led the company from 2005 to 2020.
Iger’s strategic acquisitions and obsession with innovation saved the company several times and prepared it for the future of entertainment.
Disney (DIS) Stock Forecast: Ferdinand the Bull Case
#1. Intellectual Property Monopoly
Disney has a monopoly on their characters and movies; no one can profit from Nemo or Iron Man without Disney’s written consent.
This is value scarcity at its finest — Disney creates value in the form of a $350 million Avengers movie, and they’re the only company that can show Thor on screen.
Also, Disney’s IP monopoly is more unique to the entertainment industry. For example, two SaaS companies can offer an incredibly similar cloud product without violating IP law and price compete for market share.
Yes, there are DC movies — but we’re not going to see a “more efficient and cost-effective” version of Spiderman “disrupt” the real Peter Parker.
#2. Disney+ vs Netflix
Disney+ potentially gives the company the best business model of all time — the distribution of its creations are kept in-house, too, meaning more of the long-term profits stay within Disney.
Disney+ has a higher monetization ceiling per subscriber than Netflix because of its ability to cross-sell its other offerings.
Leveraging its IP universe allows Disney+ to be almost half the price of a monthly Netflix subscription ($7.99 vs Netflix’s most popular “Standard Tier” of $13.99).
Disney+ and Netflix are different business models because of what happens once the TV turns off: Disney can still monetize its subscribers, and Netflix cannot.
A Disney+ subscriber that loves the Mandalorian can buy Baby Yoda toys and shirts for the kids or purchase cruise tickets aboard the Disney Dream and see Grogu in person.
Or how about visiting Disneyland and experiencing a Star Wars ride that puts the family in the middle of an altercation between the Resistance and the First Order?
Conversely, Netflix doesn’t benefit from its subscribers buying chess boards after watching The Queen’s Gambit.
Except for its growing catalog of original content, Netflix has much smaller windows to capitalize on its winners. It has to acquire licensing to stream TV shows and movies that eventually expire while Disney+ owns its IP forever.
Essentially, Disney+ doubles as a continuous advertisement for everything the company has to offer, beyond streaming.
The streaming wars will certainly continue, but we expect Disney+ and Netflix to successfully coexist, much like the Cash App and Venmo.
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#3. The Right Kind of Linear TV
While Disney owns several “Linear TV” channels or the traditional system in which a viewer watches a scheduled TV program at the time it’s broadcast, it is doubling down on the best kinds of linear TV, like live sports.
Disney signed a new 10-year deal with the NFL, which will see ABC/ESPN join the Super Bowl rotation, additional playoff action, exclusive national ESPN+ matchups, significantly more regular-season games, enhanced game quality, and more.
ESPN and the NBA will remain longtime partners through the 2024-25 season, with the NBA Finals exclusively aired on ABC.
In 2018, ESPN announced a five-year, $1.5 billion pact to stream UFC fights on ESPN+ and show contests on its cable channels.
And we all know that Hulu has live sports.
#4. Global Cult Following
Disney fans are similar to Apple and Tesla followers — they are worldwide and incredibly loyal to the brand.
Disney operates 12 parks, located at six different resorts all around the world. It has a massive footprint in Asia, with parks and resorts in Tokyo, Shanghai, and Hong Kong.
Marvel and Star Wars fans will camp outside of theatres for days awaiting the premiere of a new film, dressed in their favorite character’s costume.
These movies are some of the most expensive things our society creates — sometimes costing $300+ million per film.
Every year, adults and children around the globe dress up as their favorite superheroes for Halloween.
Disney is the culture, and its followers perpetuate it.
#5. Vertical Integration Possibilities
Disney’s advantage of controlling its content creation and distribution results in some exciting opportunities for integration.
For example, the company could incentivize Disney+ sign-ups by offering member-only access to certain parts of its parks, resorts, and cruises.
It could send a Vision figurine to each household that streams the latest episode of WandaVision. What about early access to films a week before their theatre release?
Disney’s bundling possibilities are endless and may not have been priced into its stock yet.
Disney’s Cinderella Castle Moat
A company’s “moat” refers to its competitive advantage over other businesses in its industry, which allows it to defend its market share and profitability — and Disney has a MOAT.
Disney’s IP monopoly enables it to benefit from and monetize nostalgia better than any company on Earth.
Disney ritualizes its movies for the youth and monetizes those memories for the rest of the customer’s life. Parents show their children Disney’s animated movies because that’s what they watched as children.
In addition, Disney can use today’s technology to recreate the classics into “Live Action” films, like it recently did with the Lion King.
This remake grossed $1.6 billion at the international box office, making it the seventh highest-grossing movie in history.
Disney indoctrinates its customers at an early age and camouflages it as youthful entertainment.
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DIS Stock Analysis
The company’s most recent earnings call occurred on February 11th – let’s look at the key highlights from Disney’s Q1 FY’21 report:
- Revenues of $16.25 billion vs $15.9 billion expected
- Earnings per share: 32 cents adjusted vs loss of 41 cents expected
- 95 million paid subscribers to Disney+ (Netflix has 203 million)
- 146 million total paid subscribers across streaming services (Disney+, ESPN+, & Hulu)
- Revenue for Disney’s direct-to-consumer business grew 73% YoY for Q1, to $3.5 billion
- Park and experiences revenue fell 53% to $3.58 billion due to COVID-19 shutdowns
- DIS will continue to invest more in media and entertainment and less in the parks segment
On the call, CEO Bob Chapek said that the outlook for parks revenue and reopening is “really going to be determined by the rate of vaccination of the public.”
Chapek and Disney are contributing to the vaccine effort in California. Disneyland is hosting a vaccination site that has so far delivered +100,000 doses.
Disneyland’s two Anaheim parks — that have been closed for over a year — are now scheduled to reopen April 30th at reduced capacity.
Disney (DIS) Stock: The Pooh Bear Case
Disney’s hurdle in the coming quarters will be its parks and experiences revenues. Per the earnings report, these revenues fell 53% YoY due to COVID-19 restrictions.
While the company announced some of its parks will partially reopen at the end of April, it’s uncertain how long the parks, resorts, and cruises will operate at a loss.
We imagine Disney is working to make itself more “pandemic proof,” but DIS skeptics might be turned off by the company’s reliance on foot traffic in the “new normal.”
Please ignore this section if you believe the world will eventually return to normal (for the most part).
Bonus: Some may be concerned with Disney’s overexposure to linear TV programs — we are not.
As previously mentioned, Disney is doubling down on the most profitable genre of scheduled programming: live sports.
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Who is Disney’s Competition?
Disney squares off with several competitors across various markets. Let’s examine Disney’s top competitors by industry:
Film and Linear TV
- ViacomCBS (VIAC)
- Sony (SNE)
- Charter Communications (CHTR)
- Comcast – Universal Pictures (CMCSA)
- AT&T – Warner Media (T)
- Netflix (NFLX)
- AT&T – HBO Max (T)
- Amazon – Prime Video (AMZN)
- Apple – Apple TV+ (AAPL)
- Alphabet – YouTube (GOOG)
- Comcast – NBCUniversal (CMCSA)
- Six Flags Entertainment (SIX)
- Merlin Entertainments (MERL)
- Cedar Fair Entertainment – Cedar Point (FUN)
- SeaWorld Parks & Entertainment (SEAS)
- Carnival (CCL)
- Norwegian Cruise Line (NCLH)
- Royal Caribbean (RCL)
Does Disney Stock Belong in Your Portfolio?
Your allocation to Disney stock depends on various factors such as personal investing goals, time horizon, and risk tolerance.
Here are some questions to help you measure your conviction in DIS stock:
- Does Disney have too much money tied up in parks and resorts?
- Will Disney+ sustain its growth?
- Can Disney+ and Netflix coexist?
- Can Disney maintain its costly film production?
- Is there more upside in high-growth technology companies?
- Is QQQ a better investment?
- Is Disney’s moat large enough to fend off competition?
- Will ESPN successfully renew its existing TV deals?
- Does Disney have too much exposure to Linear TV assets?
- Can the new Disney leadership follow in Iger’s footsteps?
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How to Research Disney Stock
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Disney (DIS) Stock FAQs
How do you become a Disney stockholder?
You can also buy Disney stock directly through the company via The Walt Disney Company Investment Plan.
Does Disney stock pay a dividend?
Disney will not pay its standard July and January semi-annual dividend due to COVID-19 impacts. Instead, the company is allocating earnings to its direct-to-consumer offerings, like Disney+ and ESPN+.
Is Disney stock a buy, sell, or hold?
Many give Disney (DIS) stock a “buy rating” because of Disney+’s hypergrowth — the streaming service is approaching 100 million subscribers just 16 months after launch.
Bottom Line: Disney Stock Analysis
Disney+ was the company’s lifeboat during the pandemic. We believe it will be the new heartbeat of The Walt Disney Company.
Disney has a historic past, but its future is equally exciting.
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Sean Graytok owns shares of The Walt Disney Company.