With its omnipresence in film and all kinds of entertainment, Disney (DIS 0.18%) is not a Wall Street secret. At the same time, its industry-leading products and services don't automatically mean you should run out and buy Disney stock.
Like any stock purchase, Disney stock requires a thorough and thoughtful analysis. Here's what you need to know as a starting point.
It's unbeatable
Disney's entertainment offerings are head and shoulders above any competitors. For one example, revenue from its 12 theme parks came in $16 billion in fiscal 2020, which was a 61% year-over-year decrease. But that was way ahead of NBCUniversal's (a division of Comcast (CMCSA -0.37%)) five theme parks (one part of its total operations, which include many other businesses) which took in $1.8 billion in 2020,or theme park operator SeaWorld Entertainment's(NASDAQ:SEAs) 12 theme parks, which took in less than half $1 billion in 2020.
Disney Mickey and Friends Cavalcade. Image source: Disney.
Disney's total 2020 sales decreased 6% year over year, padded by an excellent showing before the pandemic. In the first quarter ended Dec. 28, 2019, sales grew 36%, and in a still-strong Q2, revenue increased 21%. Now into 2021, the company is still suffering from pandemic-driven decreases. But that improved to a 13% drop in the 2021 second quarter ended April 3. Prospective shareholders should note that this number is still 7% higher than Q2 2019. Q1, with a 22% decrease, was 14% higher than 2019. That's pretty impressive considering the circumstances.
Each of Disney's components has the top spot in or close in all of its categories. The company's theme parks and resorts was its biggest category pre-pandemic, accounting for more than a third of the total in 2019, the same year Disney had seven of the top 10 highest-grossing films.
Disney+ has been a huge success, recruiting more than 100 million paid subscriptions since it launched in November 2019. That's behind leader Netflix (NFLX -3.92%), but it's closing in. The company believes that it can hit up to 260 million by 2024, potentially outpacing Netflix, which has 208 million subscribers as of March 31.
It's turning to streaming not only to pick up the slack from closed theme parks, but as the key to future growth. It acquired general streaming site Hulu in 2019, and it has started to launch a similar brand, Star, in international locations. Between these sites, as well as ESPN+, Disney is trying to dominate streaming like it dominates all of its categories, and it definitely has the chance to succeed.
Is it resilient?
The initial answer would be no. Disney isn't an essentials company like Amazon or Costco that can perform well under challenging circumstances, and it got pummeled during the pandemic.
But that wouldn't take all of the information into account.
In fact, there's high investor confidence in Disney stock, demonstrated by a 43% gain over the past year despite the sales drops.
That's because while it's struggling in the short term, it has the tools to get back to growth when the economy recovers. The Disney+ launch is beating expectations, giving it leverage in this emerging market. Disney has four films coming out over the next four months, positioning it to rake in sales as people go back to theaters. When parks are all open and at full capacity, sales should soar. If the company can launch successful new initiatives while the cards are down, that's definitely resilience.
It suspended its dividend to maintain a strong cash position while sales plummeted, but prior to the pandemic it issued and raised its dividend regularly. That will probably resume when sales get back to growth, providing another incentive for shareholders.
If you buy Disney stock now, expect some volatility in the near term. But the price is slightly down year to date as of Monday morning, so this might an opportunity to acquire shares before the price rises.
