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Bob Iger Back At The Helm

Introduction:


Bob Iger is back at the helm in a renewed effort to bring back the Disney (DIS) magic. Despite Bob Iger being reinstated as CEO and all of Disney’s business elements nearly back online, the stock sits near a 5-year low. Disney should be in the sweet spot of capitalizing on the pent-up post pandemic consumer wave of travel and spending at its parks and resorts while being the preferred and formidable foe in the streaming space. The legacy Disney business is roaring back while the new-age streaming Disney continues to build out original content and expand its membership base worldwide.


Disney’s combined streaming business via Disney+, ESPN+ and Hulu have transformed a large portion of Disney’s business model into a recurring, predictable and durable revenue stream. The collective streaming business has been layered into its legacy businesses of movies, parks, sports, products and experiences. Taken together, Disney has set itself up to benefit across the board with its streaming initiatives and legacy business elements coming together. Disney’s stock has been largely at the mercy of its streaming numbers however, the streaming-centric narrative is changing as the theme park revenue flows into the company’s earnings once again at full strength. Disney presents a very compelling buy for 2023 and for long-term investors as the synergy of its legacy business segments link with its successful streaming initiatives, all of which have more pricing power down the road for margin expansion.

Streaming Juggernaut:


Disney+ added 12.1 million subscriptions during the most recent quarter, bringing the platform’s total subscriber base to 164.2 million, exceeding the 160.45 million analysts had forecast. Predictably, growth is expected to slow in 2023 after reaching 235 million total streaming subscribers when including Hulu (47.2 million subscribers) and ESPN+ (24.3 million). As a comparator, Netflix (NFLX) has 223 million subscribers which has now been surpassed by Disney. Disney is set to increase prices for Disney+ and is planning an ad-supported tier, which is expected to boost revenue. Disney’s installed membership base can be layered into other business verticals and drive revenue per user growth over time. Disney’s streaming business is shifting gears and now focusing on profitability and not growing its userbase at any cost. Currently, revenue across its streaming products are flat with the average monthly revenue per paid subscriber for domestic Disney+ decreasing from $6.81 to $6.10, for international Disney+ increasing from $5.62 to $5.83 for ESPN+ increasing from $4.74 to $4.84 for Hulu decreasing from $12.75 to $12.23 and Hulu Live TV + SVOD service increasing from $84.89 to $86.77. As these profitability initiatives take hold, this will bode well for margin expansion.


Latest Earnings


Disney reported great topline revenue growth for the quarter and year, up 9% and 23%, respectively. Total segment operating income increased 56%, to $12.1 billion, due to higher operating income at Disney Parks, Experiences and Products. Results at Disney Parks, Experiences and Products in the current year reflected the benefit from the comparison to the closures/reduced operating capacity in the prior year due to COVID-19.


Disney Parks, Experiences and Products revenues for the quarter increased to $7.4 billion compared to $5.5 billion in the prior-year quarter. Segment operating income increased $0.9 billion to $1.5 billion compared to $0.6 billion in the prior-year quarter. Operating income growth at Disney’s domestic parks and experiences was due to higher volumes and increased guest spending. Higher volumes were due to increases in attendance and cruise ship sailing. Guest spending growth was due to an increase in average per capita ticket revenue. Improved results at Disney’s international parks and resorts were due to growth at Disneyland Paris. Higher operating results at Disneyland Paris were due to an increase in volumes and higher average ticket prices. Higher volumes were due to increases in attendance and occupied room nights. Collectively, Disney possesses pricing power in its core business segments and is exercising that option via increased ticket pricing at its Parks and Resorts and cruise ships.


Streaming and Theme Park Synergy:


The company continues to exceed all expectations in the streaming space via Disney+, Hulu and ESPN+. Disney’s streaming initiatives have been major growth catalysts for the company. Disney+’ growth in its subscriber base is yielding a durable, growing 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 164.2 million paid subscribers, Hulu has 47.2 million paid subscribers and ESPN+ has over 24 million paid subscribers. Collectively, Disney now has over 235 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. Disney now offers a hybrid growth business model that combines its legacy business via theme parks and future streaming growth, all with pricing power.


Conclusion:


With Bob Iger back in the CEO seat, the current weakness in Disney stock is a great opportunity for long-term investors. Disney has successfully shifted the company’s business model to a synergy between its legacy business and a new subscription-based streaming service that produces a durable, growing, sustainable and predictable revenue model. These streaming properties possess tremendous pricing power over the years to come with over 235 million paid subscribers across its various platforms.


In the backdrop, its legacy business segments are regaining their footing as the pandemic fully subsides. All the initiatives that Disney has taken over the previous few years to remediate its business and restore growth have come to fruition. Disney continues to invest heavily into its streaming services (Hulu, ESPN+ 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 businesses are back in conjunction with its streaming initiatives.


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