For long-term investors, it’s common knowledge that you shouldn’t become too emotionally attached to any of the stocks in your portfolio.
At the same time, though, it’s worth remembering that a great business that you love can also see its share price experience temporary obstacles.
One company that has really delivered happiness to millions upon millions of people is Walt Disney Inc (NYSE: DIS).
Known for its theme parks such as Disneyland and Disney World, referred to by many of its fans as their “happy place”, Disney as a company also owns the rights to an extraordinarily large library of content.
This content ranges from the Marvel Cinematic Universe (MCU) to the animated hits produced by Pixar, as well as their own characters such as Mickey Mouse.
Many readers may not be aware but the first Monday of every December each year is actually Walt Disney Day.
So, in time for celebration of that next Monday (6 December), I thought it would be wise to ask whether Disney stock is a buy right now for investors’ financial “happy place” (aka their portfolio).
Business for all seasons
Initially, when the Covid-19 pandemic hit, Disney’s business (particularly its Parks, Experiences and Products division) took a huge hit as global lockdowns essentially wiped out revenue for specific segments.
On the other hand, though, Disney launched its much-awaited streaming service – Disney+ – in November 2019.
That turned out to be perfect timing as the Covid-19 pandemic saw millions of Americans bunker down at home in the second quarter of 2020.
As a result, the business was able to weather the pandemic’s headwinds as the global economy both went into lockdown and gradually reopened once vaccines were available.
Watch the streaming additions
A quick glance at its latest earnings tells the above story, but in reverse. For Disney’s fiscal fourth-quarter 2021 (for the quarter ended 2 October 2021), the company saw its Parks, Experiences and Products segment post a whopping 99% year-on-year rise to US$5.45 billion as theme parks reopened.
Meanwhile, its Disney+ streaming service “only” added 2.1 million new subscribers globally during the quarter. That saw its total subscriber base hit just over 118 million, below analysts’ estimates (see below).
Source: Bloomberg.com
As a result, Disney’s share price fell in response to its latest earnings but was the picture that bad? Disney CEO Bob Chapek blamed the subscriber shortfall on Covid-19 delays to movie and TV production as well as the pushback in the Star+ launch in Latin America.
The knee-jerk reaction in the stock price reminded me of Wall Street’s perennial obsession with quarterly subscriber adds over at Netflix Inc (NASDAQ: NFLX) and investors will know that the company has turned out fine.
In fact, Mr Chapek commented that Disney was still on course to achieve the guidance the company gave at last year’s investors day – when it announced a target of between 230-260 million Disney+ subscribers by the end of its fiscal 2024.
Even on the back of that short-term disappointment, revenue for the Media and Entertainment Distribution division still came in at a healthy US$13.1 billion, up 9% year-on-year.
Metaverse potential
Finally, talk of the metaverse in the investing world recently has seen a number of high-growth tech stocks take centre stage.
Yet, Disney actually owns an incredible amount of intellectual property (IP) which could provide the company with a massive new opportunity to monetise its content.
That’s true of many consumer brands. Sportswear giant Nike Inc (NYSE: NKE) has already partnered with online gaming and creation platform Roblox Corp (NYSE: RBLX) to build “NIKELAND” – where consumers can visit a free-to-play virtual world and check out exclusive Nike items.
Disney may be thinking along similar lines as the physical and digital worlds become increasingly blurred. On the latest earnings call, Mr Chapek touched on this by saying that:
“We look forward to creating unparalleled opportunities for consumers to experience everything Disney has to offer across our products and platforms wherever the consumer may be.”
For long-term investors who envision a world where we increasingly consume goods, and content, in virtual worlds then Disney could be a big winner.
Think long, long term
Overall, Disney has a lot to celebrate on Walt Disney Day next week. Increasingly, shareholders can also own a business that has many avenues for future growth.
However, it will also require patience. So far in 2021, Disney shares are down 16.8% while the S&P 500 Index is up nearly 26% as uncertainty surrounding Covid-19 and the pace of subscriber adds has weighed on the stock.
Yet for investors who want to own a piece of a magical business for the long term, Disney looks to be as happy a place as any.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
