Some businesses will thrive in 2021 and beyond when consumers go back to pre-pandemic behavior, and others will ride new trends to even greater success. Once it's again safe to do so, people will be eager to take destination vacations. But newer trends, including streaming television and outdoor recreation, will likely also continue to grow in popularity. Three companies that are poised to benefit from both old and new trends are Walt Disney (DIS -0.93%), Garmin (GRMN -1.03%), and MGM Resorts International (MGM 0.87%).
Image source: Walt Disney.
Disney: Turning trouble into opportunity
Disney endured a remarkable, and unique, 2020. The pandemic severely impacted every segment of its legacy businesses early in the year, and investors sold the stock in droves as the implications for its theme parks, movies, television channels, and cruises became obvious in March.
But the company pivoted quickly, shoring up its financial position by suspending the dividend and accelerating the development of its streaming TV business. Fast forward 12 months, and though many of its legacy businesses remain closed or limited at this stage, Disney reported over 146 million paid subscribers for its Disney+, ESPN+, and Hulu streaming services as of Jan. 2, 2021. It now sees peak operating losses for the new Disney+ service occurring this year, and profitability in fiscal 2024.
Disney's moat is unique in that it comes from its group of businesses themselves. The interconnectivity of its film business, theme parks, cruises, and now direct-to-consumer media is unmatched. The recovery of the legacy businesses along with the growth of Disney's streaming television will combine for a resurgence of overall growth that should begin this year. The company said in its latest earnings call that attendance at Orlando's Walt Disney World "grew significantly" due to interest and increased capacity. The Florida theme park and Shanghai Disney Resort were both open for the entire first fiscal 2021 quarter.
California's Disneyland and the company's cruise business both have yet to open to customers, giving the company additional upside possibly beginning in the second half of this year when they are expected to resume operations. And Disney adjusted its strategy with movie releases. The company will combine releases in theaters with its streaming services to "increasingly put the consumer in charge and let them decide when and how they want to enjoy our one-of-a-kind entertainment offerings," it said in the recent earnings call. Investors have noticed, but the long-term potential is unmistakable.
Garmin RV Navigator. Image source: Garmin.
Garmin: Recreational activity cranks it up
The movement toward outdoor recreation was underway prior to the pandemic, providing Garmin with several years of continuous revenue growth. But the trend only accelerated once the world's indoor recreation activities began to be shut down or restricted.
Garmin has grown despite the declining sales of its legacy automotive navigation device offerings because its outdoor, fitness, marine, and aviation segments have more than compensated. These devices are increasingly popular with customers from serious triathletes to weekend runners and bikers. Outdoor devices are used in golfing, hunting, fishing, and hiking. And Garmin's aviation segment has begun supplying its autoland safety feature that are now included in Piper's M600 single engine turboprop aircraft to be used if a pilot becomes incapacitated.
Investments in the business through research and development, and acquisitions like private indoor cycling company Tacx in 2019, continue to drive strong revenue growth in these major segments. It is notable that the growth trajectory in aviation was particularly impacted by the pandemic in 2020. Garmin also faced strong 2019 comparisons due to Federal Aviation Administration regulations requiring Automatic Dependent Surveillance-Broadcast systems in planes beginning Jan. 1, 2020.
| Segment | 2020 Avg. Quarterly Revenue Growth (YOY) | Fiscal 2017 to 2019 CAGR |
|---|---|---|
| Outdoor | 20.5% |
14.6% |
| Fitness | 25.5% |
17.2% |
| Marine | 32% |
16.6% |
| Auto | (14.5%) |
(14.6%) |
| Aviation | (14.75)% |
21.1% |
Data source: Garmin financial filings. YOY = year over year. CAGR = compound annual growth rate.
Like Disney, Garmin's growing segments are interrelated. Boating and recreational vehicle makers are reporting strong sales and backlogs from trends accelerated by the pandemic. Those same outdoor enthusiasts also go hiking, biking, hunting, and golfing on their excursions. The popularity of Garmin's products is likely to continue to grow from these trends.
MGM Resorts: Gambling online or in person
MGM Resorts and the casino industry continue to be hit hard by travel and gathering restrictions, but the company has taken advantage of a new opportunity: growing momentum for legalized online sports betting and gambling in the U.S. The casino operator continues to grow its BetMGM online app, which it expects to have live in 20 states by the end of 2021, after launching in three new states in January.
BetMGM is a joint venture between the casino operator and U.K.-based Entain. MGM recently made what would have amounted to an $11 billion bid to acquire Entain and obtain full control of BetMGM. The company said it would not pursue the takeover, though, after the bid was rejected.
But being fiscally responsible is good for MGM shareholders, and the company will continue to benefit from its ownership as the business grows. MGM Resorts will gain from the growing popularity of online gambling and gaming, and should also see a resurgence at its resorts in Las Vegas, Macao, and several U.S. regional locations. Whether the gambling crowd returns to the casinos, shifts to online, or both, MGM is prepared to benefit.
Permanent shifts
There are likely permanent changes to consumer behavior from the pandemic. Disney, Garmin, and MGM Resorts are positioned to benefit from them, as well as some level of return to pre-pandemic activities.
Investors looking to capitalize on both new and old trends in 2021 would do well to have long-term positions in these three companies with winning histories.
