The stock market sell-off has created opportunities for long-term investors to scoop up shares of excellent businesses at relatively bargain prices. It's hard to pick just one, but if I could buy only one stock this month, it would be The Walt Disney Company (DIS -1.29%). The House of Mouse is emerging from the pandemic-caused shutdowns stronger than ever.
The theme park segment is on pace to surpass levels before the pandemic, and the flagship streaming service Disney+ is on its way to over 200 million subscribers by 2024. The stock is down 45% off its high, to make the case more compelling. Follow along to learn more about why Disney would be the one stock I would buy in June.
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Disney's streaming service is making solid progress
Launched in November of 2019, Disney+ reached 138 million subscribers as of April 2. That was 7.9 million higher than in the previous quarter. In contrast, streaming pioneer and industry leader Netflix lost 200,000 subscribers in its most recent quarter and is forecasting another 2 million loss in Q2.
Disney is gaining momentum as it revs up its content engine. The pandemic's onset forced it to pause content production. Further, it also caused it to delay movie theater releases, which then pushed back film releases on Disney+. One of those films, Dr. Strange in the Multiverse of Madness, is approaching $900 million in box office sales and will undoubtedly create buzz when it moves to Disney+.
Later this year in the U.S. and next year internationally, Disney will be launching a lower-priced, ad-supported version of Disney+. Typically, lower prices lead to increased buying. The impact could be more significant in international markets, where disposable incomes are lower. Already, the bulk of Disney+ subscribers is from regions paying significantly lower prices than in the United States.
DIS Operating Margin (TTM) data by YCharts
Overall, Disney has a long history of creating excellent content that consumers love to watch. The big difference is that consumers have changed the way they watch programs. Folks are moving away from cable, DVDs, and Blu-Rays and moving toward streaming instead. Because Disney was generating healthy profits and cash flows with the old method, it hesitated to prioritize streaming until late in 2019 (see the chart above for how Disney's operating margin expanded from 2000 to 2015). The initial success indicates that Disney's streaming business could eventually be just as lucrative as its legacy services were.
Its theme parks could be more profitable than pre-pandemic
The segment that includes Disney's theme parks was devastated at the pandemic's onset. The company was forced to shut the turnstiles to visitors temporarily. Fortunately, the world is making progress against COVID-19, business restrictions have been removed, and Disney's theme parks are thriving again. Indeed, in its most recent six months that ended April 2, the theme park segment more than doubled revenue from the same time the year before to $13.9 billion. Operating income jumped as well, to $4.2 billion, up from a loss of $525 million a year earlier.
The rebound has Disney on pace to surpass revenue and profit figures from 2019, despite operating with disruptions from the pandemic (Disney's park in Shanghai has temporarily closed again). Fueling the bounce are guests eager to return to the parks after a long hiatus. Per-capita spending in its most recent quarter ended in April was 40% higher than the comparable quarter in 2019. These figures indicate that when disruptions from the pandemic are fully resolved, Disney's theme parks could be more profitable than ever.
Disney's stock is trading at a discount price
Disney's stock is trading at a discount price, down 45% off its highs despite the good news and excellent prospects. What's more, Disney is selling at a price considerably below where it was before the outbreak. That's a disconnect in my view, because since the outbreak, Disney has substantially strengthened its streaming business, enhanced the profitability of its theme parks, and stands to benefit from pent-up demand from folks who have been cooped at home for far too long.
