Disney Is Primed For Takeoff

Summary

• Disney+ Growth, currently averaging 26.75% quarterly growth.
• Economic recovery, parks reopening, unemployment rate lowering, etc.
• Vaccine Rollout, currently administering over 1 million vaccines per day in the United States.
• Raising prices on Disney+.

Photo by Billy H.C. Kwok/Getty Images News via Getty Images

Thesis

Disney (NYSE: $DIS) remains a strong buy for a multitude of reasons including the following: 

1. Disney+ growth
2. Star & Star+
3. Stimulus
4. Economic recovery
5. Theaters re-opening
6. Vaccine rollout
7. Large company with a track record of surviving challenging times

Disney recently had its fiscal 2021 quarter one earnings report and not only destroyed analyst expectations (-$0.41 Estimated vs $0.32 Actual) in terms of its earnings per share (EPS), but also already beat its 2024 goal for Disney+ subscribers. Disney currently has a market cap of around 339 billion as of this writing and it’s stock trades around $185 per share.

Data by YCharts

However, despite crushing expectations in its most recent report the stock remained flat the following day. Why is that? Many analysts on Wall Street believe that although Disney+ subscribers grew, the average monthly revenue per user declined by over a dollar which was somewhat concerning. However, I don’t beleive this to be a concern since Disney is raising Disney+ prices by $1 later this month. That increase in price will increase the monthly revenue per user to about where it was previously. Disney is also using a classic tech company strategy. The strategy goes like this:

1. Offer a service at an incredibly low price (Undercuts most competition)
2. Obtain lots of users due to intriguing low price
3. Users get hooked on the service
4. Slowly raise the price of the service since users are now hooked
5. Profitability

 Disney+ And It’s Potential 

Disney+ has experienced an average quarterly growth rate 26.75% between Q2 2020 and Q1 of 2021. Using that average growth rate we can estimate what the future quarters numbers will look like. Here’s my estimates for the next 7 quarters:

The reason Disney+ subscribers are important is because of the massive revenue stream it’s created for Disney. If we take my #7 Disney+ subscriber estimate and multiply it by an average monthly revenue per user of $5, Disney will be making $2.1 Billion in revenue from Disney+ alone. That’s assuming they don’t raise prices anymore, which is unlikely.

Disney+ also is not Disney’s only revenue stream. They still have the parks, movie theaters, ESPN, Hulu, merchandise, and more. Although revenue from the parks and movie theater segment has dropped significantly due to COVID restrictions, the future is looking bright. Over 1 million vaccines are being given out each day in the United States, unemployment rate is dropping significantly, and the overall economy continues to recover. All of that is excellent news for Disney since it needs those revenue streams to recover in order to justify its current valuation.

Disney also has more going for its bull case (Bull case means you are arguing that stock price will increase over time) as well. The company is releasing a new streaming service that will be combined with Disney+ called Star. Star is going to be available in numerous international markets in the near future and Star+ will be available sometime in June. The company also has around $17 Billion in cash and cash equivalents and has an increasing shareholders equity (shareholders equity is calculated by subtracting total liabilities from total assets) which means it’s assets are now growing quicker than it’s liabilities.

Data by YCharts

Data by YCharts

Conclusion

Overall Disney remains one of my favorite companies due it now taking a more innovative approach to business, a track record of surviving uncertain times, and it’s potential for future growth. I am confident that Disney remains a buy in the short term and an even stronger buy in the long term.