Is Disney Stock a Buy on Reopening?
May 4, 2021
The world has recently been hit by a resurgence in Covid-19 cases. However, as long-term investors, we should focus on which stocks might benefit when economies fully reopen.
In this sense, it might not be obvious at first but Walt Disney Co (NYSE: DIS) is one such stock which could be a great long-term holding for investors looking to the future.
In essence, as long-term investors we need to be optimistic. If you do see economies starting to reopen to each other, in travel and other areas too, then here’s why Disney could benefit.
Theme park play
Perhaps in this age of social distancing, investors have also forgotten that a large part of Disney’s business is not related to filmmaking or streaming but actually theme parks and cruises.
More recently, its Parks, Experiences and Products division has taken a hammering. Periodic shutdowns of its theme parks and suspensions of cruises have impacted Disney’s visible reach.
For example, in Disney’s latest fiscal first-quarter 2021 (for the three months ending 2 January 2021), its Parks, Experiences and Products unit saw a 70% year-on-year plunge in revenue.
Prior to the Covid-19 pandemic, this division made up a substantial portion of total revenue – nearly 25% of Disney’s total sales in 2019.
That’s no surprise but as the pace of vaccination picks up in the US, and globally, the number of visits to its parks should start to rise.
Even at the end of April, its Disneyland parks reopened to guests, albeit only to California residents and at limited capacity for now.
For investors, this pent-up demand to travel, and parents’ desire to visit theme parks with their kids, has already seen Disney’s share price gain nearly 50% over the past six months.
Lest we forget, though, that one of the most admirable strengths of Disney has been its streaming service, Disney+. Competing with the likes of Netflix Inc (NASDAQ: NFLX), Disney+ has had resounding success.
In many ways it has softened the blow of the pandemic shutdowns. At the end of Disney’s fiscal first-quarter 2021 the number of subscribers to Disney+ hit 94.9 million.
That was up a whopping 255% year-on-year from the 26.5 million subscribers in the year-ago period. Clearly, the Covid-19 pandemic turbocharged its streaming business.
However, with an unbelievable stable of intellectual property and content – including the likes of Marvel’s Avengers as well as the legendary Star Wars – Disney was always going to thrive.
Disney’s Direct-to-Consumer (DTC) business, under which Disney+ sits, saw revenue increase 73% year-on-year to US$3.5 billion.
Even better, the operating loss of this division narrowed by more than half to US$466 million, from US$1.1 billion a year ago.
Moving away from providing its proprietary content for cable TV companies, Disney is cutting out the middleman and proving content directly to consumers.
Pioneered by Netflix, it’s a much more profitable long-term sustainable business model which Disney is now adopting.
Strength in numbers
One of the best things about Disney stock is that it has the ability to provide investors with the dual optionality of both a pandemic winner (streaming) and a reopening beneficiary (parks and cruises).
For long-term investors who are keen on identifying solid companies which could emerge from the pandemic even stronger, Disney is certainly a top candidate.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.