For Walt Disney (NYSE:DIS) and its Disney stock, the novel coronavirus has created a see-saw situation. One the one hand, theme parks can’t make doodly-squat when they’re closed to visitors. Disney pocketed $7.2 billion in total admission revenue at its domestic and international theme parks last year. With those facilities closed or curtailed much of the year, it has created enough of a financial powder keg to turn Cinderella’s Castle into cinders.
But forced to stay in, the entertainment-starved masses turn to streaming services for entertainment, including Disney+. According to the Washington Post, it now has 73 million global subscribers, making it “a clear favorite in the streaming wars among any service” not named Netflix (NASDAQ:NFLX).
This represents a ray of light for those who hold Disney stock. The House That Walt Build has been otherwise ravaged by the novel coronavirus pandemic, which has also hampered its income from theater releases. All told, Disney has seen its operating income drop 45% for the year to just $8.1 billion. That includes a fiscal fourth quarter loss of 82%. What’s in store for 2021? Let’s swipe that crystal ball from the evil queen and see what good we can find in all this.
Disney Stock Breaks the Sorcerer’s Spell
The “Covid-19 Crash” that pummeled many stocks on March 20 left Disney stock at $85.76, a low water mark not seen since 2014. Yet since that 2020 nadir, it has accomplished the remarkable by gaining 99%. Remember, Disney is an entertainment company. To put things in perspective, AMC Entertainment Holdings (NYSE:AMC) is down 63% year-over-year and off 16% since March 20.
How did Disney stock do it? From my perch, this company is just too strong for a lousy, despicable virus to kill: It’s the equivalent of Mickey Mouse with four-finger brass knuckles and a bankroll. Disney’s market cap sits at an enormous at $309 billion. And you can bet its loyal fans (probably glued to Disney+ anyway) will flock back to the Disney World, Disneyland and any big screen featuring the iconic brand’s latest films.
Here I want to delineate a crucial point: You can’t lump Disney stock in with other leisure, entertainment and resort-focused investments. You could even label Disney a sector unto itself.
Contrary to what some of my InvestorPlace colleagues have posited, I contend that many travel-connected sectors will not come back anytime soon. Maybe I lack vision, but I cannot see the airline and cruise ship sectors ever returning to pre-pandemic form. Anyone in high-risk groups for Covid-19 will need a whole lot of convincing before they leap back into the Petri dish.
The Case for Disney’s Post-Pandemic Strength
I hold out much more hope for Disney’s theme parks. They provide lifetime experiences for families and it’s easier to socially distance there, if need be, than on a plane. Picture it: Six feet apart and outdoors versus six inches away from Harry Hacking Cough in a cooped-up space. (Will anyone ever look at an airplane cougher the same way again?)
Likewise with theaters, people enjoyed going to them for immersive experiences before Covid-19. Even if you could, it’s no fun to watch the latest “Star Wars” film at home. But rest assured that if the pandemic continues, Disney will pour more of its mighty resources into Disney+. It won’t cure everything that bedevils the entertainment giant. But it will at least provide a financial stopgap of sorts.
Speaking of Disney+, I imagine all those desperate parents and bored pop culture vultures who’ve signed up for it since March will keep it even when the pandemic fades into memory. New consumer habits, once formed, are hard to undo and given all the new tech tricks people have learned this year, the notion of streaming services fading into the background again seems implausible. No, impossible.
Bring on the Happy Ending
Gauging analyst segment, I spy something akin to a Disney kinda climax where all the townsfolk run out to greet the conquering hero. Three months ago, Disney stock was already strong with this crowd as 15 firms called it a buy and 10 a hold. Fast forward to today, and the ranks of those in the buy column have swelled to 19, while the hold column has shrunk to seven. No one calls it a sell.
As for the consensus price target, it’s nothing to write home about; at $174.20, it stands barely above the current share price of $173.73. Still, I’m going to cast my lot with those who call Disney stock a buy. As you might’ve guessed, streaming is why. The pandemic, as mentioned, jumpstarted Disney+ in a way conventional market forces otherwise could not. I have seen estimates as high as 260 million subscribers by 2024. That’s a third higher than the current Netflix tally of slightly more than 195 million.
Thus, Disney+ has potential, if the company so desires, to become the world’s leading subscription streaming service. The coming year will see Disney+ expand into Eastern Europe, South Korea, Hong Kong and other markets. Meanwhile, think about all the treasured entertainment classics already sitting in the Disney vaults and the promise of new programming.
Now, imagine it’s mid-2021. The pandemic is under control. Movie theaters reopen. So do the theme parks. The plot thickens! So will the portfolio.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
