Growth stocks are companies that increase revenue and earnings faster than the average business in their sector or the overall market. Walt Disney (DIS -1.01%) isn't doing either of those things at the moment as it recovers from the adverse economic effects of the coronavirus pandemic.
But hidden behind its current lackluster top-line data are some epic trends that could transform the entertainment giant -- potentially making its shareholders a boatload of money. Let's dig deeper.
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The streaming industry is red hot
Analysts at Grand View Research expect the global streaming market to grow at a compound annual rate of 21% to $224 billion by 2028 as cord-cutting and smartphone penetration drive expansion. Netflix, the current market leader, boasts a projected market share of 23% compared to Disney's 8%, according to Statista. But the House of Mouse's unparalleled branding power can help it close that gap.
Disney has spent the last few decades developing and acquiring industry-leading intellectual property, including goldmines like Lucasfilm and Marvel Entertainment. It uses these assets to create original content and build a competitive moat for its streaming platform.
In January, the finale of Disney+'s flagship original series The Mandalorian, which is based on the Star Wars cinematic universe, helped propel the platform to the top of Nielsen's weekly streaming charts. This success demonstrates the power of Disney's brands and the built-in audience its original content can command.
Disney+ also has multiple Marvel-based series like WandaVision, Loki, and Assembled, which all launched in 2021.
Synergizing streaming with studio entertainment
Disney's studio entertainment business also gives it a competitive edge that streaming-only rivals such as Netflix will struggle to replicate. The company is transitioning to a hybrid distribution model, releasing films in both theaters and online through Premier Access -- which allows Disney+ subscribers to stream them for $30 the day they debut in theaters. Black Widow is an exciting proof of concept for this distribution strategy.
The film, which takes place in the Marvel cinematic universe, generated around $80 million in North America and $78 internationally in its opening weekend. It also earned at least $60 million in Premier Access rentals for a total of $218 million. These numbers aren't jaw-dropping compared to other Marvel titles (for example, Avengers Endgame generated $1.2 billion in its opening weekend). But Black Widow has already exceeded its $200 million production budget and provided unique value to Disney+ subscribers.
A long-term transformation
With a forward price-to-earnings (P/E) multiple of 37, Disney stock isn't cheap -- especially considering the company's second-quarter revenue declined 13% to $15.6 billion because of weakness in its COVID-battered amusement park business, which is still down 44% against the prior-year period.
But Disney stock is a bet on the company's future, not its present. And that future looks bright because of its competitive advantage in streaming. Disney+ boasts 103 million subscribers as of the fiscal second quarter (up from 33.5 million in the prior-year period). And management expects this number to surge to between 230 million to 260 million by 2024.
