Shares of waltz disney ( SAY -0.12% ) hit another all-time high on Monday. The media giant briefly traded above the $200 mark two weeks ago, but this is the first time it has closed above the meaty mark.
Disney certainly seems to tick all the boxes that would make it a millionaire manufacturer. It is the undisputed top dog in various entertainment markets. The stock has also roughly doubled over the past year, so the momentum is also on its side. The scary thing – as in the scary good – here is that Disney isn’t even firing on all cylinders right now. With catalysts in place for its trailing segments to start turning things around in 2021, you’ll find it hard to argue that Disney isn’t a millionaire maker.
The Dumbo in the bedroom
The key driver of Disney’s revival on Wall Street is obviously the resounding success of Disney+. The streaming platform was launched at the end of 2019, and in just over a year it is already at 94.9 million premium subscribers worldwide.
Disney’s decision to disrupt is laudable, but let’s run through a few quick points that might surprise or even worry you.
- Disney+ currently only accounts for 7% of Disney’s revenue. Hulu actually generates twice as much revenue as Disney+ between its flagship platform and its live TV streaming service.
- Average revenue per user tends to decline as Disney expands into heavily populated but less lucrative markets.
- During a media event in December, Disney confirmed that Disney+ would not be profitable until 2024.
- Disney+’s success comes at the expense of some of its legacy businesses, including the box office revenue and distribution fees it receives from cable and satellite TV companies.
Do not worry. You didn’t just walk into a bear trap in an otherwise bullish Disney coin. I just wanted to address the Dumbo in the room. Disney+ is a game-changer, but it will leave a mark on many media stockis other companies.
There are optimistic counters to Disney+ hits. The price of Disney+ will increase in the US later this month, so there could be a reversal in the erosion of average revenue per user. Disney’s direct-to-consumer streaming platforms – Disney+, Hulu and ESPN+ – already account for about a quarter of Disney’s revenue mix and will continue to grow. Streaming should more than offset the decline in the segments it displaces. The lack of short-term profitability is a small price to pay knowing that you are disrupting yourself before someone else gets ahead of you.
Lots of moving parts
In a week, we will celebrate the grim one-year anniversary of the pandemic closing all Disney resorts. By next month, the sixth and last resort to reopen could finally be unlocking turnstiles at its theme parks. Disney’s four-ship cruise line could also resume operations in the spring.
Disney returned to the local multiplex last weekend for the first time in a year. Raya and the last dragon was the main draw, but now Disney is cashing in on theatrical and digital distribution at the same time by charging people who prefer to stay home $30 for three months of unlimited family streaming access to the full animation.
Disney’s weak segments will start showing year-over-year growth later this month, but they’ll also do so in a smarter way. It is now emphasizing more expensive day tickets and encouraging stays at its theme parks over annual passes for easier access. Every blockbuster movie now has more than one initial revenue stream. It may lose ad revenue and streaming fees as consumers shift to streaming services on linear TV, but all points lead to Disney having more control over viewers as well as superior data collection. which will make it even more responsive.
You might not be able to tell from the last two questionable quarterly financial statements, but Disney is much smarter now than it was a year ago. Disney is in better shape to be a leader going forward. Disney is a millionaire manufacturer stock.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.