Disney (DIS) hosted a parks-focused analyst meeting at Walt Disney World, where the company’s senior leadership team shared their optimism about the recovery of the parks and experiences business. The company highlighted the strong demand for its theme parks, resorts, cruises, and consumer products, as well as the innovation and investment that will drive future growth.
Disney’s parks and experiences segment was hit hard by the pandemic, as the company had to close or limit the capacity of its attractions around the world. However, the segment has shown signs of improvement in recent quarters, as more people get vaccinated and travel restrictions ease. In the third quarter of fiscal 2021, the segment’s revenue increased by 308% year-over-year to $4.3 billion, while its operating loss narrowed from $1.96 billion to $0.34 billion.
Disney expects the segment to return to profitability in the fourth quarter of fiscal 2021, as the company celebrates its 50th anniversary at Walt Disney World and launches new attractions such as Avengers Campus at Disneyland Resort and Remy’s Ratatouille Adventure at Epcot. The company also plans to resume its cruise operations in the U.S. and Europe, and reopen its Hong Kong Disneyland Resort and Disneyland Paris in the coming months.
Disney’s Streaming Business is Growing Rapidly
Another bright spot for Disney is its streaming business, which includes Disney+, Hulu, ESPN+, and Star. The company has been investing heavily in content and technology to compete with rivals such as Netflix, Amazon Prime Video, and HBO Max. Disney’s streaming business has been growing rapidly, reaching 173.7 million subscribers as of July 3, 2021, up from 100.1 million a year ago.
Disney+ is the flagship service of the company, offering a wide range of content from its iconic brands such as Marvel, Star Wars, Pixar, and National Geographic. The service has been expanding globally, launching in new markets such as India, Latin America, and Eastern Europe. Disney+ has also been experimenting with different pricing and distribution models, such as offering premier access to new movies for an additional fee, or bundling the service with other platforms such as Hotstar in India and Starzplay in the Middle East.
Disney expects to have 230 million to 260 million Disney+ subscribers by the end of fiscal 2024, and to achieve profitability for the service in the same year. The company also expects to have 50 million to 60 million Hulu subscribers, 20 million to 30 million ESPN+ subscribers, and 40 million to 50 million Star subscribers by then. The company aims to reach a total of 300 million to 350 million streaming subscribers by fiscal 2024, and to generate $8 billion to $9 billion in streaming content spending.
Disney’s Stock is Undervalued, J.P. Morgan Says
Despite the impressive performance of its streaming business and the recovery of its parks and experiences segment, Disney’s stock has not performed well this year. The stock is down 37.7% since the beginning of the year, as investors have been concerned about the impact of the pandemic, the competition in the streaming market, and the uncertainty around the company’s future strategy.
However, J.P. Morgan analyst Alexia Quadrani believes that the stock is undervalued, and that the company is poised to reward shareholders’ patience in the next six to 12 months. Quadrani has an overweight rating and a $125 price target on the stock, implying a 50% upside from the current level.
Quadrani expects the company to resolve some of the major questions that have been weighing on the stock, such as the fate of Hulu, the potential investment in ESPN, and the possibility of a linear sale. Quadrani also expects the company to resume its dividend, which was suspended in May 2020 due to the pandemic. Quadrani notes that Disney’s CEO Bob Iger hinted at the possibility of returning cash to shareholders in his closing remarks at the analyst meeting, saying that there is still room for shareholder returns even under a higher capital expenditure level.
Quadrani believes that Disney has a long runway for growth, as it leverages its strong brands, content, and franchises across its diverse businesses. Quadrani also thinks that Disney has a competitive advantage in the streaming market, as it offers a differentiated and appealing product to consumers. Quadrani concludes that Disney is a “must-own” stock for long-term investors, and that the current price level is an attractive entry point.