Disney – Irrational 52-Week Low


Disney’s (DIS) market capitalization has been eviscerated by over 30% and now stands at an irrational 52-week low. Disney’s valuation has been in a tug of war between its legacy business model and its streaming initiatives. Disney should be in the sweet spot of capitalizing on the pent-up post pandemic consumer wave of travel and spending at its parks while being the new and preferred stay-at-home content provider via Disney Plus. The former has been altered due to uncertainty over the newest omicron coronavirus variant while the latter continues to build out content and expand its membership base.

Disney has rolled out a 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 albeit minor bumps in the road.

Taken together, Disney has set itself up 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 pandemic 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. Disney presents a very compelling buy for long-term investors as the synergy of its legacy business segments get back online in conjunction with its wildly successful streaming initiatives, all of which have more pricing power down the road to expand margins.

Streaming and Theme Park Synergy:

The company continues to exceed all expectations in the streaming space accelerated by the stay-at-home pandemic throughout 2020 and into 2021. Disney’s streaming initiatives have been major growth catalysts for the company. Disney+’ growth in its subscriber base had shifted the conversation from pandemic impact on its theme parks to 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 118.1 million paid subscribers, Hulu has 43.8 million paid subscribers and ESPN+ has 17.1 million paid subscribers. Collectively, Disney now has over 179 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.

Its most recent quarterly earnings showed a decrease in the growth rate of Disney+ subscribers hence the stock’s decline. Wall Street has been struggling to appropriately value Disney’s stock and can’t make up its mind whether the basis of valuation is on its legacy business model or new streaming business model. The alternative reality is that it’s a hybrid growth business model that combines its legacy business and future streaming growth with pricing power. Wall Street has grossly mischaracterized this synergy.

Post Pandemic and Box Office:

Disney’s business segments (with minor omnicron disruptions) are coming back online as the pandemic subsides worldwide with widespread vaccinations. Even the Box Office is showing life with Disney’s successful post pandemic releases of Black Window, Shang-Chi, Eternals and soon to be released Spider Man movie. Disney’s theme parks are reopening as seen with phased reopening efforts and mask mandates being lifted. Inevitably, movie productions are resuming, movie theaters and theme parks are reopening 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 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 original Disney+ content to its streaming service with tremendous success.