If you believe in Disney (NYSE:DIS) but feel that the stock might be getting ahead of itself, you're probably not alone. The media giant's shares have been big winners in the new normal, even if it's about to post its fourth consecutive quarter of double-digit declines in revenue. With so much riding on the profitless Disney+ it's only natural to to wonder if there are other ways to cash in on Disney's success. Some of the names might surprise you.
Roku (NASDAQ:ROKU), American Campus Communities (NYSE:ACC), and longtime rival Comcast (NASDAQ:CMCSA) are riding on the continuing success of the House of Mouse. If one, two, or even all three names don't seem like companies that are benefiting from Disney's winning ways, let's take a closer look at these unlikely coattail hoppers.
Disney+ has been a game-changer for Disney. The premium streaming service was launched just 18 months ago, and it's already at more than 100 million paying subscribers. ESPN+ is also helping boost the media giant's sports juggernaut brand. Hulu -- through both its namesake service and its Hulu + Live TV platform -- is actually generating more revenue than the other two services combined.
The success of Disney's three streaming services has been great for the market bellwether's stock, refashioning the House of Mouse as a forward-thinking media mogul. However, it has come at the expense of its once-lucrative business of collecting royalties from cable and satellite television providers. You can't catch The Mandalorian or WandaVision on your old-school Disney Channel from your cable plan. Linear TV can't provide instant access to entire seasons of old shows across various networks the way that Hulu can.
The streaming revolution has added to Disney's business (one may even say it has been a "+" for the company), but it has also taken away from a core revenue stream. Roku offers all of the good without any of the bad as a pure play on the rise of streaming services, providing access to thousands of streaming apps through its industry-leading operating system.
Roku's hub comes factory installed in 38% of all smart TVs sold in this country, and the free platform is available to others through dirt cheap dongles that plug into not-so-smart TVs. The 53.6 million homes that Roku was serving at the end of March are 35% more than it had a year earlier. Revenue is growing even faster as Roku gets better at generating ad revenue from its free-to-consumers hotbed of streaming applications.
American Campus Communities
American Campus Communities is the largest owner of student housing communities in the country, watching over 166 properties containing roughly 111,900 beds. What does a third-party college housing provider have to do with Mickey Mouse? Well, the stock was upgraded by Evercore ISI analyst Steve Sakwa earlier this week after Disney World announced plans to relaunch its internship program this summer.
When the pandemic erupted, the world's largest theme park resort suspended the Disney College Program, where university students from all over come to Central Florida for a hands-on experience that sometimes leads to permanent professional positions. Where does American Campus Communities fit into all of this? It was contracted to build out a 10-phase, $615-million residential community on the outskirts of the Disney World property for the program participants. Four of the phases are already complete, and with last week's announcement, the remaining phases are now back on track to be open within the next two years.
American Campus Communities is structured as a real estate investment trust, or REIT. It pays out the lion's share of its funds from operations to investors. American Campus Communities yields 4%, and right now that's 400 basis points better than Disney, which suspended its dividend last year.
Disney's closest rival in the theme park game is Comcast's Universal Studios, and it's probably not a coincidence that both companies have resorts in Central Florida and Southern California. Disneyland's reopening in California and Disney World turning 50 later this year with an 18-month celebration in Florida should woo tourists from all over. Comcast will be there to cash in on the overflow of guests.
Disney and Comcast are rivals on various fronts, but they clearly benefit from each other when a major attraction opens. Another interesting wrinkle here is that Comcast's theme park resort in Orlando struck a licensing deal with Marvel before the comic book giant was acquired by Disney. An entire Marvel Super Hero Island has been a star attraction at Universal's Islands of Adventure since that theme park opened in 1999, and contractually it's why Disney World doesn't have attractions or shows themed to many of the more popular Marvel properties. Disneyland is going to open Avengers Campus next month at its California Adventure park, but it can never be duplicated at Disney World.
Disney naturally collects royalties from Comcast for licensing fees and merchandise sales, but Comcast also benefits from Disney's ability to make its Marvel characters more popular. Like most superhero/villain origin stories, it gets complicated -- but it's ultimately lucrative for Comcast to cash in on Disney's success.