Walt Disney (DIS +1.34%) has just gone through a devastating 15 months. The coronavirus pandemic forced it to temporarily close its doors on theme parks, resorts, cruise ships, and shops.
This time would likely have been even more awful if it weren't for the success of its streaming services and consistent profits from its media segment. Disney+ was perhaps the most perfectly timed business launch of all time, in November of 2019. Since then, it has accumulated over 100 million subscribers. Still, the streaming service is losing money as the company invests in building it out and expanding it internationally.
The saving grace for operating profits has been Disney's media segment. That segment includes ESPN and ABC, which are home to many National Basketball Association broadcasts.
Image source: Getty Images.
The NBA is better than ever
If you recall, last year the NBA was playing games in a bubble created at a Walt Disney resort in Florida. The arrangement did not allow for any fans. The lack of screaming enthusiasts celebrating every basket and booing opponents was apparent. You could hear shoes squeaking on the gym floor while watching a broadcast. That could partly be why viewership declined to record-low levels. Fortunately for Disney, NBA viewership has recovered from the lows of last year.
Indeed, estimates suggest that TV ratings for the NBA playoffs are up 50% from last year, and back to 2019 levels. That's great news for Disney, considering many of the games are carried on its ESPN network. The best part for fans and Disney is that the fun is not over yet. With four teams still in contention for the elusive NBA championship as of this writing, the boom can go on a bit longer.
What's more, as coronavirus restrictions continue to ease, stadiums are allowing more fans to attend. The ruckus makes the games more fun to watch for many. And the competition is moving closer to the championship round.
Up until this point, the NBA playoffs were aired on several networks, not all owned by Disney. The NBA Finals, however, will be aired on Disney's ABC network.
What this could mean for investors
In the most recent quarter, Disney reported operating profits of $2.46 billion. Interestingly, Disney's linear networks, including ESPN, brought in $2.87 billion in operating profits. How can one segment bring in more operating profits than the entire company? Simple: The rest of the company lost money.
That's understandable for Disney at the moment. The rest of its business is still recovering from the devastations of the pandemic. And while the streaming services segment is thriving, it's still too early for those services to generate profits. As a result, Disney's media segment continues to carry the load, and the fact that NBA viewership is bouncing back bodes well for Disney's best profit engine of the moment.
It won't have to carry the load much longer. All its theme parks are open again, and folks are returning to movie theaters. It's been a long road, but Disney is getting closer to returning to full strength. Investors looking for a stock that can benefit as economies reopen should certainly consider adding Disney to the list.
