The Walt Disney Company (DIS 0.16%) may have a diverse set of businesses under its corporate umbrella, but nearly every one was severely impacted by the onset of the pandemic. Disney management pivoted quickly, accelerating the launch of its streaming strategy (headlined by Disney+) and shoring up its balance sheet.
Investors kept the faith throughout 2020, assuming travel and tourism would recover and result in the company having a multi-tiered growth driver strategy going forward. But now a slowdown in streaming subscriber growth, along with recent uncertainty related to the pandemic, has had Disney shares retreating in 2021.
A deeper look into the situation, however, will show how this looks like a great opportunity for investors to jump into a company with unrivaled brands and a truly unique franchise.
Image source: Walt Disney.
A holiday season gift
The company had said it expected its Disney+ subscriber growth rate to slow from pandemic-impacted levels. But when it reported fiscal 2021 fourth-quarter earnings on Nov. 10, investors were nonetheless surprised. The company only added 2.1 million additional paid subscribers in the three months ended Oct. 2, 2021. This accelerated a downtrend that has seen the shares fall 17% year to date.
For investors who believe in the company's long-term picture, it provides an opportunity that doesn't often come from blue-chip-company stocks.
Subscriber growth picture
The news that investors focused on most in Disney's recent quarterly report was the slowdown in its Disney+ subscriber growth. But stepping back from that single data point shows that the streaming service and the other direct-to-consumer (DTC) streaming options from Disney are performing well. Prior to November 2019, Disney offered only ESPN+ and Hulu services. The rollout of Disney+ was accelerated last year, and the chart below shows how fast it has grown along with the full DTC segment.
Data source: Walt Disney financial releases. Chart by author.
While the flattening of the growth trend may have scared investors, it didn't faze Disney itself. In the fourth-quarter earnings call, management reassured investors that the company was still on track for its bigger picture goal. Disney CEO Bob Chapek said, "We're confident we are on the right trajectory to achieve the guidance that we provided at last year's Investor Day -- reaching between 230 and 260 million paid Disney+ subscribers globally by the end of fiscal year 2024, and with Disney+ achieving profitability that same year."
The rest of the business
With all the focus on Disney+ and the growing market of cord-cutters, it seems some investors have forgotten all about Disney's legacy businesses. The company relies heavily on travel, tourism, and consumers' desire for entertainment. While the recovery from the pandemic has come in fits and starts, there should eventually be a full return for the desire to visit theme parks, go on cruises, and enjoy sports and entertainment. The U.S. traveler data below shows air travel is now returning close to pre-pandemic levels.
Data source: U.S. Transportation Security Administration (TSA). Chart by author.
Disney relies on cross-selling from its various businesses. Character toy or doll sales keep kids interested in movies and television. Kids and parents alike want to visit the theme parks where the company continues to add new rides and attractions like Star Wars: Galaxy's Edge.
Disney's brand is unmatched, and its franchises also can't be duplicated. The recent stock dip should be viewed as a buying opportunity for investors looking to hold for 2022 and beyond.
