The Walt Disney Company (DIS 0.18%) is home to some of the most popular content franchises in the world. At the pandemic's onset, the company's hands got tied behind its back as it was forced to close its theme parks, stop content production, and pause movie theater releases.
As business restrictions have eased, The House of Mouse is getting back to full strength, including revving up its content engine. Indeed, management estimates it will spend $32 billion on content in 2022.
Image source: Getty Images.
A surge in content spending could lead to a subscriber boom
One-third of the $32 billion content budget will be spent on sports. The remainder is an enterprise-wide budget, meaning the content created will appear across its various media properties, including Disney+, Hulu, and theatrical releases. To put that figure into context, streaming industry leader Netflix (NFLX -3.92%) spent $17.7 billion on content in 2021.
Of course, great content attracts viewers to streaming services and the box office, so Disney will likely generate several hits from the massive budget. Its most recent theatrical release, Doctor Strange in the Multiverse of Madness, has earned $877 million on the big screen. Movie studios typically negotiate a 50/50 split of the revenue with movie theaters, so the film will add roughly $450 million to Disney's coffers. The House of Mouse has an extraordinary lineup of films releasing at the box office later this year, including Avatar 2, the sequel to one of the most successful science-fiction films of all time.
The hit film will appear on Disney+ following its theatrical window, delighting existing subscribers and attracting new ones, no doubt. The flagship streaming service boasts 138 million subscribers as of April 2, an increase of 7.9 million from the previous quarter. Perhaps in anticipation of new and exciting content hitting the platform later this year, Disney expects growth to be more significant in the second half of the year. Disney noted its latest Stars Wars series premiere featuring Obi-Wan Kenobi was the most-watched show on its platform. Management expects Disney+ will reach between 230 million and 260 million subscribers by 2024.
Is Disney's stock poised for a bull run?
I think so. The company's shares were down 46% off the highs in 2021. Disney is caught up in the broader market sell-off that takes down stocks of all types. Admittedly, Disney has taken an extra blow from the poor results of rival Netflix in recent quarters. Netflix alluded to several factors when revealing its first sequential decline in streaming subscribers in over ten years. The market fears that economic reopening and rising competition for people's attention could soon hit Disney's streaming services next.
DIS PS Ratio data by YCharts
Regardless, Disney is a collection of lucrative business segments, including theme parks, hotels, cable channels, cruise ships, and more. Even if it should be hit with a slowdown in its streaming business (there are no signs of that just yet), it would not materially hurt the company's revenue and profits in the near term.
Finally, the crash in the stock price has Disney selling at a price-to-sales ratio of 2.6, which is near the lows of the previous decade. Given that Disney's stock is not often measured by the price-to-sales ratio because it is a mature company with profits and cash flow, the pandemic has disrupted those figures more than sales, so it could be more informative to look at this metric now.
So while the higher content spending may not be the only reason, Disney's stock appears poised for a bull run.
