Disney's (DIS -0.10%) business was hit hard by the coronavirus pandemic. Shutting down several of its services for months on end cost the company billions of dollars in lost revenue and profits.
Thanks to human genius, several effective vaccines have been developed against COVID-19, and nearly 4 billion doses have been administered worldwide. That allowed economies to start reopening and removing restrictions on businesses. Still, the delta variant of the virus is causing a surge in infections and has investors worried it could derail the pace of reopenings. The pause in reopening optimism could be a great opportunity for long-term investors to buy Disney stock.
Image source: Getty Images.
Disney is about to get back 40% of its operating income
The rise in cases, tragic as it may be, is unlikely to cause further shutdowns in the economies that Disney operates in. Large percentages of the population are vaccinated in the U.S., Europe, and China, and Japan is catching up quickly. Moreover, the daily rate of vaccination has reached nearly 34 million. At that rate, 75% of the world's population would be vaccinated -- a level that has been discussed as a milestone to reach herd immunity and end the pandemic.
With shutdowns unlikely, Disney can welcome one of its most important profit engines back into operation. In the two fiscal years before the pandemic, the Disney segment that includes theme parks earned operating profits of $6.7 billion and $6.1 billion, accounting for 45% and 39% of overall operating profits. In 2020, the segment lost $81 million as lockdowns hampered it.
Thankfully, all its theme parks are open to visitors. The House of Mouse did not sit still during the pandemic. It made some changes to park operations that are likely to increase profits from the segment. It removed low-cost annual pass holder memberships and instituted other forms of price increases. The company has long hesitated on increasing prices too quickly for fear of negative publicity. However, with the public acknowledging the challenges it went through during the last year and inflation occurring across the board, it was opportune to raise prices.
Image source: Disney.
Take advantage of hesitation
On the flip side, the reopening of economies is likely to affect the company's streaming services negatively. Folks who were cooped up at home looked for entertainment options and often chose Disney's streaming services. Disney launched its newest service, Disney+, in November of 2019, and it has reached over 103 million subscribers in a little over 18 months. Still, management reiterated its confidence that the service will reach over 230 million subs by 2024.
Investors simultaneously doubt the positive effects the reopening will have on Disney's legacy businesses, while at the same time showing nervousness on how reopening will affect its streaming services. As a result, Disney's stock is flat year-to-date despite positive developments against COVID-19. The doubt and nervousness are creating an opportunity for long-term investors to buy Disney stock. The company has delighted customers and investors for decades and is likely to do the same for decades more, regardless of the volatility in the near term.
It may not make you a millionaire in a year, but buying and holding Disney's stock is likely to increase your wealth if you hold for the long term.
