Shares of Walt Disney (DIS -0.05%) hit another all-time high on Monday. The media giant traded briefly above the $200 mark two weeks ago, but this is the first time that it has closed above the meaty milestone.
Disney certainly seems to check off all of the boxes that would make it a millionaire maker. It's the undisputed top dog across various entertainment markets. The stock has also roughly doubled over the past year, so momentum is also on its side. The scary -- as in scary good -- thing here is that Disney isn't even firing on all cylinders right now. With catalysts in place for its lagging segments to start turning things around in 2021 you're going to have a hard time arguing that Disney isn't a millionaire maker.
Image source: Walt Disney.
The Dumbo in the room
The key driver to Disney's renaissance on Wall Street is obviously the head-turning success of Disney+. The streaming platform was launched in late 2019, and in a little more than a year it's already up to 94.9 million premium subscribers worldwide.
Disney's decision to disrupt itself is commendable, but let's go over some quick points that may surprise you or possibly even concern you.
- Disney+ is currently accounting for just 7% of the revenue at Disney. Hulu is actually generating twice as much revenue as Disney+ between its flagship platform and its live TV streaming service.
- Average revenue per user has been trending lower as Disney expands into heavily populated but less lucrative markets.
- At a media event in December Disney confirmed that Disney+ isn't going to be profitable until 2024.
- The success of Disney+ is coming at the expense of some of its legacy businesses including box office receipts and the carriage fees it receives from cable and satellite television companies.
Don't worry. You didn't just step into a bear trap in an otherwise bullish Disney piece. I just wanted to address the Dumbo in the room. Disney+ is a game changer, but it will leave a mark in many of the media stock's other businesses.
There are upbeat counters to the Disney+ knocks. The price of Disney+ will be going up in the U.S. later this month, so there could be a reversal in the average revenue per user erosion. Disney's direct-to-consumer streaming platforms -- Disney+, Hulu, and ESPN+ -- are already at roughly a quarter of the revenue mix at Disney, and will continue to grow. Streaming should more than offset the decline in segments that it is displacing. The lack of near-term profitability is a small price to pay in knowing that you're disrupting yourself before someone else beats you to it.
A lot of moving parts
A week from now we'll celebrate the grim one-year anniversary of having every Disney resort closed down by the pandemic. By next month the sixth and final resort to reopen could finally be unlocking the turnstiles to its theme parks. Disney's four-ship cruise line could also be back in business in the springtime.
Disney returned to the local multiplex this past weekend for the first time in a year. Raya and the Last Dragon was the top draw, but now Disney is cashing in from theatrical and digital distribution at the same time by charging folks preferring to stay at home $30 for three months of unlimited family streaming access to the full-length feature animation.
Disney's weak segments will begin posting year-over-year growth later this month, but they will also do so in a smarter way. It's now emphasizing pricier one-day tickets and encouraging resort stays at its theme parks over annual passes for easier access. Every hit film now has more than one initial revenue stream. It may lose ad revenue and carriage fees as consumers shift to streaming services over linear television, but all points lead to Disney having more control over viewers as well as superior data collecting that will make it even more responsive.
You may not be able to tell from the last couple of iffy quarterly financial statements, but Disney is a lot smarter now than it was a year ago. Disney is in better shape to be a leader in the future. Disney is a millionaire maker stock.
