There is no doubt that Walt Disney (NYSE:DIS) has made millionaires out of shareholders in the past. Over the last ten years, the stock has grown at a compounded annual rate of 13%. That was good enough to turn those who invested $295,000 in the stock into millionaires. However, things may be different in the next ten years and most of us don't have $295,000 to invest. Still, the company has a lot going for it.
The fact that people are staying home more has created a surge in demand for in-home entertainment, helping the company's Disney+ streaming service take off with flying colors. True, Disney has made millionaires out of shareholders in the past, but let's look if it can continue to be a millionaire-maker stock.
Image source: Getty Images.
Streaming services will drive revenue growth
In a few years' time, Disney's streaming services will help offset revenue losses from cord-cutters and may eventually eclipse its media segment. Since its launch in November of 2019, Disney+ has acquired over 60 million subscribers. Altogether, the Burbank, California-based company's three streaming services (Disney+, Hulu, and ESPN+) have over 100 million paying members already, and are likely to continue growing for the foreseeable future.
When Disney reports its fourth-quarter and fiscal 2020 results on Nov. 12, it's likely to announce significant subscriber gains. Earlier this year, Disney+ was launched in Belgium, Luxembourg, Portugal, and Indonesia.
Further, the Disney+ Hot Star service in India is experiencing surging customer interest, now that the Indian Premier League has returned to action. According to one report, Disney+ Hot Star has seen a 99% week-over-week rise in its user base. Indeed, Google Trends shows searches for Disney+ in India spiking in September to levels higher than at the initial launch in the country, and remaining elevated through the first week of November.
The Disney+ surge in India and launch in additional countries, the release of Mulan direct to streaming in the U.S., and the start of season two of The Mandalorian will all act as drivers to increase Disney+ subscriptions in the near term. The resounding success has led the company to announce the 2021 launch of an international, general entertainment service under the Star brand.
Cash cows
Disney has a long history of making box office hits. Between 1995 and 2020, Disney movies have generated over $39 billion in box office sales, which is good enough for first place among all studios in that period.
Disney already has negotiating clout with movie theaters because of its box office success. While the usual split between a movie theater and studio is 50/50, Disney frequently negotiates a 65/35 deal. Mulan's release straight to Disney+ proves it can skip theaters completely, threatening to remove a lucrative revenue source for theater operators. The ability to release a movie straight to its streaming platform will further enhance that negotiating power and allow Disney the chance to get better terms in the future.
Popular characters, scenes from movies, and other related attractions can then be experienced by fans at Disney theme parks, which have been popular destinations for families for decades. The company has raised prices at nearly twice the rate of inflation over the past five years, and its parks are usually full. What has been holding the company back from raising prices faster is that it does not want to appear to be gouging customers. After experiencing the pandemic's substantial financial difficulties, Disney could have some cover to increase prices a bit faster.
Moreover, when the pandemic begins to fade, there may be pent-up demand for visits to Disney's parks. That could drive increased attendance at higher prices. Even at pre-pandemic levels of attendance, Disney parks will likely sustain strong revenue and profit for the long term.
The verdict
Admittedly, in the near-term, Disney is in the middle of a challenging scenario. However, it will likely bounce back from this moment, and continue being one of the most recognizable businesses in the world for decades into the future. The pandemic has not changed the fact that the company makes content people love -- as evidenced by the box-office results. Or the fact that families derive great value from the theme parks -- as evidenced by the crowds of visitors.
So, yes, Disney could still be a millionaire-maker stock for those willing to buy and hold the consumer discretionary stock for the long term -- although it will take a strong stomach to ride out the difficulties caused by the pandemic.
