For Walt Disney (DIS -1.01%), the past two years have been the tale of two businesses.
When the pandemic shut down the economy in 2020, Disney theme parks shuttered, greatly impacting the entertainment giant's financials. However, almost simultaneously, its new streaming service Disney+ had an unexpectedly strong debut, and it managed to reach 118 million subscribers at the end of last quarter.
As we enter 2022, Disney's theme parks are seeing some recovery, but Disney+ has seen its subscriber growth slow. How do these metrics (as well as a few others we will discuss) affect any decision to buy Disney stock? Let's find out.
Image source: Getty Images.
Parks and experiences are recovering slowly
When Disney reported its fourth-quarter and fiscal year 2021 earnings in November, it was the first report since the beginning of the pandemic for which all its parks were open for the entire quarter, albeit with reduced capacity. The results were improved and showed promise for the future. Revenue from parks, experiences, and products increased 99% year over year to $5.4 billion, and operating income came in at $640 million, improving from a loss of $945 million in Q4 of 2020.
It's important to remember that these year-over-year metrics are coming off a pandemic-challenged Q4 of 2020, but there's good news sequentially as well. Q4 revenue and operating income in this segment were up 25% and 80%, respectively, from the third quarter. Management is also looking forward to international visits to domestic resorts returning to pre-pandemic levels, but this is not expected to happen until late 2022.
Disney's cruise business is also experiencing a strong recovery, with its ships seeing bookings ahead of their historical rates, even with increased prices and social distancing protocols. Disney is debuting a new cruise ship in June of 2022 that has its inaugural season almost 90% booked. While these bookings are encouraging, it is important to remember that we are not yet out of the woods with the pandemic and cruise ships are seeing more cases of coronavirus despite added safeguards put in place. Regardless, it does seem that customers are eager to return to the experiences Disney has to offer.
Disney+ flexes its muscles
Early in 2021, Disney was riding high with its Disney+ streaming service. In February, the company raised its subscriber guidance after surpassing its 2024 target three years early and announced it now expects 230 million to 260 million subscribers by 2024. In the most recent quarter, Disney+ added just 2.1 million new customers, the slowest sequential growth since its launch. While management stated that subscriber growth would be uneven and that it still expects to hit its revised subscriber target, this is something current or potential investors should keep an eye on.
More recently, Disney's strong brand was front and center in a dispute with Alphabet's (GOOG -1.96%) (GOOGL -1.97%) YouTube TV. On Dec. 18, Disney and YouTube TV failed to come to an agreement over channel rights, meaning all Disney-owned networks like ABC, ESPN, Freeform, NatGeo, and FX would no longer be available to YouTube TV subscribers. However, only one day later, the two companies were able to negotiate a deal to allow YouTube TV to continue to carry the Disney-owned content. This is a strong signal for the strength of Disney's brand, and many YouTube TV subscribers would likely have fled to Hulu, a Disney-owned streaming service. It also signals that the value of Disney's intellectual property has impacts beyond simply its subscriber count.
Full recovery may not be quick
Disney has a long road ahead as the business continues to recover from the impact of the pandemic. It's also important to remember that we're not yet out of the woods, and new variants can rapidly change the outlook for a company like Disney.
Whether now is the time to buy Disney depends on each investor's patience and investing timeline. Disney stock is a smart long-term investment as the strength of the business should see it through these difficult times.
