Phew…we’ve made it through the first quarter of 2021. So much has happened, and we still love The Walt Disney Co. (NYSE:DIS) stock. And here’s why.
Congress recently passed the massive $1.9 trillion American Rescue Plan Act of 2021. This is fantastic news for DIS stock because consumers are now going to have more money to spend on Disney-related products and services.
Additionally, President Joe Biden’s administration beat its goal of distributing 100 million doses of coronavirus vaccine within its first 100 days. This is also excellent news for DIS stock.
In turn, consumers are now going to be more likely to go out movies and travel to theme parks.
Thus, both of these bullish developments bolster the fundamental advantages that originally attracted us to DIS stock.
Subscription-Based Revenue Models
Wall Street continues to love companies that can tap into a subscription model to generate monthly/annual revenue.
Why? Because the revenue is consistent.
You know it’s going to keep coming in month after month, year after year.
That said, Disney has been slowly building into a subscription model powerhouse during the past few years with its streaming video platforms and its movie franchises.
Disney+ and Hulu
Disney started its direct-to-consumer subscription gambit by joining the Hulu group in 2009.
The company experienced some growing pains, but Hulu ended up pummeling the subscription services most other individual networks were trying to offer.
In March 2019, Disney became the majority shareholder in Hulu when it bought 21st Century Fox. Shortly after in May 2019, Comcast (NASDAQ:CMCSA) relinquished its remaining interest in the company to Disney.
But gaining control of Hulu wasn’t enough for Disney. It decided to go head-to-head with Netflix (NASDAQ:NFLX), HBO and others with Disney+, and it surpassed everybody’s wildest expectations.
After its first day of operation in November 2019, the company delighted Wall Street by announcing Disney+ had more than 10 million subscribers.
Fast forward to Feb. 11 when DIS announced it has attracted a whopping 94.9 million subscribers, and you can see why traders have pushed the stock up to new all-time highs.
Then, the firm announced that it topped 100 million subscribers in just 16 months in early March.
Sure, this rate of acquisition won’t last forever. But the more subscribers Disney can bring in now, the more recurring revenue it’s likely to enjoy down the road.
Movie Franchises & New Releases
Overall, the company is driving its Disney+ success by coupling the streaming service with its movie franchises and new releases.
Disney used to be in the one-and-done movie making business. Snow White had no overlap with Robin Hood, which had no overlap with The Lion King.
But then, the company realized it could capitalize on its own success by making movie franchises.
For example, Frozen was a smashing success. So why not make Frozen II?
Everybody seemed to like Toy Story, Toy Story 2 and Toy Story 3. So why not break out of the bounds of a standard trilogy and make Toy Story 4?
Fans can’t seem to get enough of Star Wars. So why not round out the third, yes third, trilogy in the series with Star Wars: The Rise of Skywalker?
But don’t stop there. Why not create even more spinoffs, like The Mandalorian, WandaVision and The Falcon and the Winder Soldier, that will only be available on Disney+?
By combining movie franchises and new releases — like Mulan, Soul and Raya and the Last Dragon — with its Disney+ streaming service — that has everything from the Marvel movie catalog to The Simpsons on it — Disney has found the holy grail of subscription-based entertainment revenue models.
Theme Parks and Hotels
Moreover, while the company’s subscription-model products have been driving a lot of recent growth, revenue from the company’s theme parks and hotels has been stifled during the coronavirus pandemic.
Disneyland, and most of the company’s other theme parks, have been closed. And Walt Disney World in Florida has only been open to a reduced number of visitors.
That said, we expect this woeful trend to turn around this year as more and more people get vaccinated and state governments begin to ease their restrictions.
Disneyland and California Adventure will be opening their gates once again on April 30, after being closed for more than a year.
Walt Disney World has been operating at 35% capacity, but plans to increase attendance as vaccination levels increase.
Just imagine the amount of pent-up demand there is to use some stimulus money to go see company’s new Star Wars Galaxy’s Edge at Disneyland and Walt Disney World.
In a post-pandemic world, people will be happy to pay the ever-rising prices for admission and in-park purchases.
In fact, before the pandemic, Disney’s U.S. and international theme park and hotel business was responsible for more than 34% of the company’s revenue and 37% of the company’s earnings.
If that segment of the business can bounce back to those levels in 2021, the sky’s the limit for DIS stock this year.
Bottom Line on DIS Stock
After bottoming out in March 2020, DIS stock began clawing its way back and eventually rocketed higher at the end of the year.
The stock has broken above the up-trending resistance level it has been interacting with since early 2019 and has recently been moving higher in a broadening-wedge consolidation pattern.
DIS stock broke above $200 in March before pulling back on some profit taking. That said, we now expect the stock to break above $200 again in the coming months as it continues to climb higher.
On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it. John & Wade do not own the aforementioned securities.
