Disney (DIS) is in the sweet spot to capitalize on the pent-up post-pandemic consumer wave of travel and spending. Disney rolled out its wildly successful array of streaming initiatives that catered to the stay-at-home economy during the pandemic. These streaming efforts have transformed Disney's business model, which will be further bolstered by its legacy businesses as the prospects of the world economy continue to improve and reopen. Taken together, Disney is set to benefit across the board with its streaming initiatives firing on all cylinders and theme parks coming back online. The company has been posting phenomenal streaming numbers that have negated the negative COVID-19 impact on its theme parks. This streaming-specific narrative will change as the theme park revenue comes back online and flows into the company's earnings. As a result, Disney presents a compelling buy for long-term investors as its legacy business segments get back on track in the latter part of 2021 in conjunction with its wildly successful streaming initiatives.
Durable Streaming Revenue and Theme Parks
Disney has forecasted that its Disney+ streaming platform will have up to 260 million subscribers by 2040. Even more, advertising revenue for the upcoming fall television season rose by "double-digits" from the levels of 2019 before the global pandemic, per Bob Chapek. As a result, about 40% of sales during the "upfront" sales period went to streaming or digital ads, Chapek said at Credit Suisse's virtual Communications Conference.
The company continues to exceed all expectations in the streaming space accelerated by the stay-at-home pandemic backdrop. Disney's streaming initiatives have been major growth catalysts for the company. Disney+'s growth in its subscriber base has shifted the conversation from the pandemic impact on its theme parks to a durable and sustainable recurring revenue model. This streaming bright spot in conjunction with its park and resorts coming back online has been a perfect combination as of late, especially with widespread vaccinations. Disney+ has racked up 94.9 million paid subscribers, Hulu has 39.4 million paid subscribers, and ESPN+ has 12.1 million paid subscribers. Collectively, Disney now has over 146 million paid streaming subscribers across its platforms. Disney+ has been wildly successful via unleashing all its Marvel, Star Wars, Disney, and Pixar libraries in what has become a formidable competitor in the ever-expanding streaming wars domestically and internationally. Hence Disney's stock performance during the pandemic as its theme parks were shuttered. The success of its streaming initiatives has sent the bears running and bulls winning out.
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Post Pandemic
Disney's business segments are coming back online as the pandemic subsides worldwide with widespread vaccinations. Disney's theme parks are reopening, as seen with phased reopening efforts and mask mandates being lifted. Inevitably, movie productions will resume, movie theaters and theme parks will reopen to full capacity, and sports will return to pre-pandemic formats. The resumption of these activities will feed into Disney's legacy businesses in conjunction with its massive streaming successes. Disney (DIS) continues to dominate the box office year after year with a long pipeline of blockbusters in the queue. Its parks and resorts continue to be a growth avenue with tremendous pricing power. Disney is going all-in on the streaming front and acquired full ownership of Hulu, and the company has launched its Disney+ streaming service with tremendous success. The company offers a compelling long-term investment opportunity given its growth catalysts that will continue to bear fruit over the coming years.
Removing Mask Mandates
Walt Disney World in Florida will implement a flexible face mask policy as optional for visitors to the theme park resort who are vaccinated. Visitors who aren't fully vaccinated still will need to wear face masks indoors and on all rides and attractions. Because vaccines aren't yet available for children under age 12, they will be required to wear masks.
Whether vaccinated or not, all visitors will still be required to wear face coverings on all park transports per the guidelines. This is the latest evolution in Disney's stance on masks at Disney World's since the pandemic hit in March 2020. Disney World closed for two months in 2020 at the start of the outbreak and reopened in the summer with strict safety guidelines that involved masking, social distancing, and crowd limits. Recently, Disney has started allowing visitors to go without masks outdoors. In addition, Disney said they expect to ease up on physical distancing guidelines soon. Collectively, the continual shift in safety policy is a slow turn back to normalcy for full capacity crowds.
Conclusion
Disney (DIS) has successfully shifted its business model to a subscription-based service that produces a durable, sustainable, and predictable revenue stream via its streaming initiatives. Now the new business model is spinning our more revenue via advertising spend. About 40% of sales during the "upfront" sales period went to streaming or digital ads. As a result, the company has been able to shift the narrative from pandemic challenges to becoming a streaming juggernaut with over 146 million paid subscribers across its various platforms. Its legacy business segments are ready to regain their footing in this backdrop as the pandemic subsides via widespread vaccinations. All the initiatives Disney has taken over the previous few years to remediate its business and restore growth appear to be coming to fruition via its Fox acquisition and its streaming initiatives. Disney continues to invest heavily into its streaming services (Hulu, ESPN Plus, and Disney+) to propel its growth and dominance in the streaming space. The company is evolving to meet the new age of media consumption demands via streaming and on-demand content. Disney's streaming initiatives will continue to be major growth catalysts moving forward. Disney is a compelling buy as its legacy theme park business comes back online in conjunction with its streaming initiatives.
Noah Kiedrowski
INO.com Contributor
Disclosure: The author holds shares in AAPL, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY and USO. He may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.
