Disney - Flexing Its Pricing Power Muscle

Disney (DIS) has been the sweet spot of capitalizing on the pent-up post-pandemic consumer wave of travel and spending while being the new and preferred stay-at-home content provider via Disney Plus. Over the past couple of years, Disney has rolled out and refined its 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 its legacy businesses will further bolster as the world economy prospects continue to improve and reopen. 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. Due to the tremendous success of Disney Plus, the company is now flexing its pricing power muscle and put through pricing increases on its streaming platform. This pricing power speaks to the value of Disney Plus as a standalone streaming platform while expanding its margins on this new business vertical. Disney presents a compelling buy for long-term investors as 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.

Pricing Power Flexing

Disney recently pushed through another price increase on its monthly subscription tier for its Hulu offerings. This is on top of price increases that it pushed through on its Disney Plus subscription earlier this year. Clearly, the Disney streaming platforms possess pricing power as the adoption of these steaming properties by consumers becomes more widespread. Part and parcel with these price increases is margin expansion and increased revenue. Disney has forecasted that its Disney Plus streaming platform will have up to 260 million subscribers by 2040. Thus, even marginal price increases will translate into meaningful revenue windfalls for the years to come.

Streaming and Theme Park Synergy

The company continues to exceed all expectations in the streaming space accelerated by the stay-at-home pandemic backdrop. Disney’s streaming initiatives have been major growth catalysts for the company. Disney+ growth in its subscriber base has shifted the conversation from pandemic impact on its theme parks to a durable 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 94.9 million paid subscribers, Hulu has 39.4 million paid subscribers, and ESPN+ has 12.1 million paid subscribers. Collectively, Disney (DIS) now has over 146 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 was shuttered.

Post-Pandemic and Box Office

Disney’s business segments 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 and Shang-Chi. Disney’s theme parks are reopening, as seen with phased reopening efforts and mask mandates being lifted. Inevitably, movie productions will resume, movie theaters and theme parks will reopen 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. In addition, Disney is going all-in on the streaming front and acquired full ownership of Hulu, and the company has launched its Disney+ streaming service with tremendous success.

Conclusion

Disney (DIS) has successfully shifted its business model to a subscription-based service that produces a durable, sustainable, and predictable revenue stream via its streaming initiatives. These streaming properties possess tremendous pricing power over the years to come. As a result, the company has shifted the narrative from pandemic challenges to a focus on becoming a streaming juggernaut with over 146 million paid subscribers across its various platforms. Against the backdrop, its legacy business segments are ready to regain their footing as the pandemic subsides via widespread vaccinations. We have already seen the box office come alive with Disney’s Black Widow and Chung-Chi successes. All the initiatives that Disney has taken over the previous few years to remediate its business and restore growth appear to be coming to fruition via its Fox acquisition and its streaming initiatives. Disney continues to invest heavily into its streaming services (Hulu, ESPN Plus, 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 theme park business comes back online in conjunction with its streaming initiatives.

Noah Kiedrowski
INO.com Contributor

Disclosure: The author holds shares in AAPL, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY, and USO. He may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.

One thought on “Disney - Flexing Its Pricing Power Muscle

  1. The success of Disney+ is a death knell for cinemas. If Disney+ proves more or equally as profitable as theatrical releases, Disney will migrate all it's movies to it's streaming platform. No more theatrical releases. It's all about the bottom line.

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