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Is Disney a Good Stock for a Volatile Market?

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The media conglomerate has amazing brand power, but how would it hold up in turbulent times?

When it comes to recessions, COVID-19 mitigation efforts, and other factors, Walt Disney (DIS -2.83%) is a mixed bag. On one hand, the Disney+ streaming service has created a steady stream of recurring revenue. On the other hand, Disney's theme parks, film franchises, and more depend on consumers' ability and willingness to get out and spend money. In this Fool Live video clip, recorded on Dec. 6, contributors Matt Frankel, Danny Vena, and Toby Bordelon discuss how Disney could hold up in a difficult economic environment. 

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Toby Bordelon: Like you, Matt, I'm a parent of young children, so I'm very familiar with this company. They've got a lot going on. You can think of Disney really now, last year, I think it was last year they changed the way they report their segments and now we have two segments. They have what they call media entertainment distribution and then parks and experiences, or parks, experiences, and products. Really, if you want to think about those and easy to digest, quick phrase, it's theme parks and TV and movies, is functionally what we've got going on here.

Once upon a time, under their old reporting, originally, which had four segments, theme parks generated the most revenue of any division. That is not the case, at least for the past few years. Part of it is because they restructured and they have the other stuff crammed into one reporting division, but the other part is we've been in COVID, and the theme parks have not been opened at full capacity for a large part of the last couple of fiscal years.

I think they just reported their year-end, which was in October, basically, in September, is the end of their fiscal year, typically. You're seeing bleed of both 2020 and 2021 has some pre-COVID and some post-COVID stuff in there. Those are their two divisions. You think about that theme park, obviously, we know what that is. It also includes the cruises, also includes their National Geographic tours, too. Many people don't know they own that, but they do, it's a small part, but you can go on in National Geographic tour, that's technically Disney now.

But the movies and TV stuff, that's where the big action is right now. That's where most revenue is coming from. That, of course, is Disney+ along with Hulu and ESPN+, their streaming packages. On Plus I think it's Hotstar, which is more of an international streaming service out there, mainly in Europe. Then they have their movies which the production of all these big movies with the Marvel films, the Disney stuff, other Disney branded films, the animated features, distribution of that into the theaters and then you've got your regular TV stuff like ESPN, ABC, a couple of other networks they own. That's been doing quite well. Disney+ has been growing very quickly. Movies are now back in force. Production has started again. We've had several Marvel films out. We've got another one, Spider-Man. Call me guys next week. Is it next week or the week after?

Danny Vena: I think it's just in time for Christmas.

Bordelon: Just in time for Christmas. Coming soon. There are a lot of interesting anticipation about that, Hawkeye is streaming on Disney+. We've got The Book of Boba Fett launching soon, the next season, The Mandalorian coming, all kinds of stuff so that money train is an operation and people are loving it. Disney, they have so many different revenue sources between like, I'm at home for my entertainment or I'm taking a vacation for my entertainment.

They can get it both ways. In a volatile market, even the economy comes on a little bit, people don't travel and theme parks as much. Maybe they want to make sure they maintain that Disney+ subscription, or maybe they want to add that Disney+ subscription or maybe even ESPN+ subscription, watching more stuff at home, maybe local trips to the theater. In a booming economy, oh, yeah, let's go spend our money in theme parks, going to explode. They can hit you from any economic situation which is one reason I like them so much. But they are an entertainment company, that's what they do. A sustained downturn, which could even be a sustained stock market downturn when people don't have as much, they don't feel as rich, could be an issue for Disney.

Matt Frankel: I ranked Disney my No. 8 out of eight [large cap stocks] as the most likely to hold up well if the volatility continues. The big reason is just because of why we're having volatility is because of renewed COVID fears that we're seeing this. I feel like out of the companies on this list, Disney probably has the most to lose if we get another big COVID wave in terms of its theme parks having to shut down, Toby, correct me if I'm wrong, but I think the theme parks are the biggest revenue driver out of the group.

Bordelon: They should be.

Frankel: In normal times.

Bordelon: In normal times, yes, in normal times. Again, I want to see what our theme park revenue looks like in a steady state with this new restructuring because we haven't seen that yet.

Frankel: Sure.

Bordelon: Because used to be they also broke out the TV from the movie separately, but now that's one, but in terms of at least what their business was pre-COVID yeah, the theme parks were the No. 1 generator, that's where the money was.

Frankel: If we get further COVID lockdowns, which I believe is unlikely, but if that happens, I think out of the stocks of this list, Disney probably has the most to lose in terms of business.

Bordelon: Matt, you don't necessarily even need a lockdown, you just need people afraid to go. That could be an issue.

Daniel Vena owns Walt Disney. Matthew Frankel, CFP® owns Walt Disney. Toby Bordelon owns Walt Disney. The Motley Fool owns and recommends Walt Disney. The Motley Fool has a disclosure policy.

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