Disney - Irrational 52-Week Low

Disney's market capitalization had been eviscerated by over 30%, and the stock price hit an irrational 52-week low in early December. 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+. However, 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 (DIS) 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 its legacy businesses will further bolster as the world economy prospects 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. As a result, 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+'s 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 (DIS) now has over 179 million paid streaming subscribers across its platforms. In addition, 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. Unfortunately, Wall Street has grossly mischaracterized this synergy.

Post-Pandemic and Box Office

Disney's business segments (with minor omicron disruptions) are coming back online as the pandemic subsides worldwide with widespread vaccinations. Even the Box Office shows life with Disney's successful post-pandemic releases of Black Window, Shang-Chi, Eternals, and Spider-Man movies. Disney's theme parks are reopening, as seen with phased reopening efforts and lifted mask mandates. 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.

Conclusion

Disney (DIS) hit an irrational 52-week low on slowing subscriber growth via its streaming platforms and the omicron variant. This sell-off is an excellent opportunity for long-term investors. Disney has successfully shifted its business model to a synergy of legacy Disney and a subscription-based service that produces a durable, growing, sustainable and predictable revenue via its streaming initiatives. These streaming properties possess tremendous pricing power over the years to come, with over 179 million paid subscribers across its various platforms.

Against this backdrop, its legacy business segments are ready to regain footing as the pandemic subsides via widespread vaccinations and reopening efforts. We have already seen the box office come alive with Disney's Black Widow, Chung-Chi, Eternals, and Spider-Man's successes. All the initiatives that Disney has taken over the previous few years to remediate its business and restore growth have come to fruition via its Fox acquisition and its streaming initiatives. Disney continues to invest heavily into its streaming services (Hulu, ESPN+, 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: Stock Options Dad LLC is a Registered Investment Advising (RIA) firm specializing in options-based services and education. There are no business relationships with any companies mentioned in this article. This article reflects the opinions of the RIA. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. The author encourages all investors to conduct their own research and due diligence prior to investing or taking any actions in options trading. Please feel free to comment and provide feedback; the author values all responses. The author is the founder and Managing Member of Stock Options Dad LLC – A Registered Investment Advising (RIA) firm www.stockoptionsdad.com defining risk, leveraging a minimal amount of capital and maximizing return on investment. For more engaging, short-duration options-based content, visit Stock Options Dad LLC’s YouTube channel. Please direct all inquires to [email protected]. The author holds shares of AAPL, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY, and USO.

One thought on “Disney - Irrational 52-Week Low

  1. The problem with Disney is their corporate culture. They depend on the entertainment industry and that is their core business with all the associated ups and downs that go along with that sector. Disney has also inserted some political elements into their corporate and business structure. The now used saying, "go woke, go broke" applies to Disney. They have inserted this into some of their animated films and well as other productions and their ABC network is, of course, part of the media establishment that quite frankly, does not always work for the public good. All of these factors and associated nonsense (the "wokness" that has invaded ESPN) that goes with the woke culture is finally affecting the stock price.

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