The Walt Disney Company (NYSE: DIS) has been many investors’ virgin stock pick, because people are told to invest in something they are familiar with. Who doesn’t know about Disney with fond childhood memories from classic Disney movies and family trips to Disneyland? 

But is Disney stock as enchanting as the company’s brand implies? After all, investors make their decisions on rationality, not rapidity. 

Is Disney investors’ fairytale or nightmare? Let’s probe the company under a microscope through the lens of the past, the present and the future.

Past: Disney Stumbled in Market Performing

Take a look at its historical performance (source: Google Finance) first till late November 2022: 

Six-Month Performance (10% down):

One-Year Performance (33% down):

Five-Year Performance (6% down):

As we can see, Disney stock has seen negative returns in the past 6-month, 1-year and 5-year time spans (-10%, -33% and -6% respectively). 

To understand why Disney’s stock has been struggling, we will look at some key events that might trigger these stock price turbulences in recent years. 

• January 2018 to January 2020: With the acquisition of 21st Century Fox in 2019, rising revenue from its amusement park ticket sales (see the graph below) and the launch of its streaming service Disney+, Disney has been on the upward road. 

Source: MarketWatch

• March 20, 2020: The COVID-19 pandemic led to worldwide park & theater shutdowns, causing Disney stock to plummet over 43% from its historical high;

• March 20, 2020 to March 19, 2021: Over the next year, Disney stock rebounded with a 122% growth when the company’s streaming service Disney+ had gained huge popularity with the rise of home entertainment during the pandemic year;

• November 2021 to November 2022: For the past year,  Disney stock had been on a downward spiral as Disney+ subscriber growth slowed with fierce competition and broader market sentiments & recession fears also made an impact on the stock.

The past years have been a rollercoaster ride for the Magical Kingdom’s market performing. Macroeconomics sentiments, the pandemic and market competitions all play a factor influencing Disney’s market performance.

The Passionate Investor

Present: A Shake of Disney’s Business Mix

To truly understand Disney and where the company’s heading, we have to look at its business mix first. With the lingering influences from COVID-19, Disney’s business mix has seen some shifts. 

According to Walt Disney’s 10-K report of fiscal year 2021, the company generates revenues from two main business segments:  DMED (Disney Media and Entertainment Distribution) and DPEP (Disney Parks, Experiences and Products).

Under these two segments, there are several lines of business:

DMED (Disney Media and Entertainment Distribution):

• The Linear Networks Business
• The Direct-to-Consumer Business
• The Content Sales/Licensing Business

DPEP (Disney Parks, Experiences and Products):

• Parks & Experiences
• Consumer Products

Based on the data from Statista, the Linear Networks business has been the top source of income for the company. According to Walt Disney, the Linear Networks business generates revenue from affiliate fees, advertising sales and fees from sublicensing of sports programming to third parties.

Source: Statista

In addition, we can see a noticeable recovery in the revenues from Parks & Experiences in 2022, thanks to the easing COVID policies in different countries and reopenings of Disney’s theme parks. 

In the pre-pandemic days, it was actually the DPEP (Disney Parks, Experiences and Products) segment that brought in the biggest bulk of revenue (about 37.6% of its total revenue in 2019) to the home castle. Linear network business topped the second (about 35.6% of revenue in 2019). 

For its Direct-to-Consumer line, which generates revenue from subscription fees, advertising sales and pay-per-view and Premier Access fees, we’ve seen steady growth for the past three years as more people opt for home entertainment. 

Nevertheless, it is not all smooth sailing for its Direct-to-Consumer business.

With heavy upfront investment and ruthless competition with Netflix and Amazon in the streaming service space, Disney+ is suffering from an operating loss of nearly $1.5 billion according to Los Angeles Times. Despite its impressive 235 million subscribers, Disney+ is bleeding in exchange with growth.

Overall, Disney’s total revenue grows about 26% from 2020 to 2022 – an optimistic trend so far. Now with Bob Iger on board again, his management and strategy on each Disney’s business segment will also influence how Disney’s future unfolds.

We can say that the COVID-19 pandemic really makes an impact on Disney’s money making mechanism – its traditional Linear Network business climbs slowly and Direct-to-Consumer business expands yet faces fierce competition in the online streaming space. 

The Passionate Investor

Future: The House of Mouse Ventures into Unknown Space

Photo Source: Adobe Stock

As one of the world’s favorite storytellers, Disney brings fantasy into people’s lives in both offline and online experiences.

In addition to Disney’s investment in building and expanding its streaming service Disney+, the House of Mouse is also venturing into Metaverse, dreaming big to bridge real life and virtural reality.

The company’s previous CEO Chapek once showed his confidence: “If the metaverse is the blending of the physical and the digital in one environment, who can do it better than Disney?” And the company had already taken actions to enter Metaverse with the appointment of its first “metaverse executive”: Mike White.

Rome is not built in one day – it will take some time for Disney to build its castle in Metaverse. But this might be right direction. The future is digital. So far, Disney has been doing a good job for staying relevant for generations.

Whether investing in Disney is fairytale or nightmare is subjective and contextual. But the key is to form your judgement and believe in that story.

The Passionate Investor

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