Walt Disney (DIS -2.03%) suffered substantial financial losses throughout the COVID-19 pandemic, with its parks division losing $2.6 billion in operating income in the first quarter of 2021 because of lockdowns. However, the company took the opportunity to double down on its flagship streaming service, Disney+, as it waited out the worst of the pandemic. As a result, Disney has come out the other side with a flourishing streaming business and a promising return of theme park guests.
The company's stock is still down 39% since last year as it continues to recover from its unavoidable downfall in 2020 and 2021. However, its overwhelmingly positive quarterly results in August and forthcoming developments suggest investors should seriously consider buying Disney stock.
A better-than-expected quarter
On Aug. 11, Disney pleasantly surprised investors when posting its fiscal third-quarter earnings. The company's stock subsequently jumped 13%, as several of its segments overperformed. The most notable improvement came from Disney's parks business, which saw revenue increase 70% year over year to $2.19 billion, allowing investors to breathe a sigh of relief as the company appears to be back to pre-pandemic form. CEO Bob Chapek said in an interview with CNBC on Disney's Q3 2022 earnings that the boost in the company's parks' revenue is by no means a one-off event, as he believes there's no reason for guests to withdraw anytime soon.
Moreover, Chapek further quelled investors' concerns as he said, despite recent increases in the cost of fuel and airline tickets, Disney's parks haven't seen "any softening" of demand. The executive also noted how the company hadn't seen its international travel rebound yet, with most of its third-quarter figures boosted by domestic visitors. Disney's positive outlook on its parks business is promising, as the segment made up 34% of its overall revenue in Q3 2022, and a return to guests is crucial to the company's future financial success.
In addition to glowing parks earnings in Q3 2022, Disney's overall revenue grew 26% year over year and 28% over the last nine months. The company's third-quarter results suggest Disney is on the right path, having overcome the worst of the pandemic and now poised to win the streaming wars.
Increased market share
Similar to multiple entertainment companies, Disney's Q3 2022 streaming subscriptions were of particular concern to investors, and the House of Mouse did not disappoint. Disney's stock rise in August was largely fueled by reaching 221.1 million streaming subscriptions worldwide across Disney+, Hulu, and ESPN+, surpassing Netflix's 220.7 million for the first time.
According to data from Antenna, Disney has the largest share of streaming subscriptions of any service, with a 30% share as of Q2 2022 when combining Disney+ and Hulu members. Netflix has the biggest single-platform subscription share at 26%, but the figure has significantly declined from its 42% in Q1 2020. Disney has taken the streaming industry by storm, growing Disney+ into a formidable opponent to industry giant Netflix in less than three years.
While Disney impressively surpassed Netflix's total paid subscribers in Q3 2022, its average revenue per user (ARPU) is still considerably behind Netflix's. For instance, in the three months ending July 2, Disney+'s ARPU in the U.S. and Canada was $6.27 per month, while Netflix's was $15.95. However, Disney has plans to rectify this with price hikes across all of its streaming services and the addition of its ad-supported tier coming to Disney+ in December. Both moves will raise the company's ARPU and considerably bolster its streaming revenue.
Is Disney's stock a buy?
Despite a glowing third quarter, Disney's stock is still down 39% year over year and 29% year to date, as investors are cautious after the losses it suffered throughout the pandemic. However, its price-to-earnings ratio has decreased 78% since September 2021, suggesting its current price is a bargain.
As Disney expects its park attendance to keep up its current rate and the company is only three months away from launching a lucrative ad-supported streaming tier to Disney+, now is the best time to invest in Disney. The House of Mouse could be in for significant gains over the next few quarters.
