This year is a particularly special one for Walt Disney (DIS -0.66%) as 2023 will mark a century since the company's founding. The House of Mouse is one of the most successful entertainment companies in history and, despite recent headwinds, will likely continue dominating this space for another century.
Disney's stock is down 37% year over year, having been the victim of a sell-off. However, the company and investors have plenty to look forward to this year. Here are three reasons to buy Disney stock in 2023.
The king of streaming
Disney's streaming business has experienced highs and lows over the last 12 months as it has put all its efforts toward growing its subscriber base.
In the fourth quarter of Disney's fiscal 2022, its media and entertainment segment reported a revenue decline of 3% year over year to $12.7 billion and a 91% drop in operating income to just $83 million. The significant hit to income came after Disney sank about $30 billion into content in 2022 as it worked to grow its flagship streaming service, Disney+.
The company's hefty investment in streaming has paid off as it achieved the most subscribers in the industry in Q3 2022 and retained the top spot in Q4, reporting 236 million members versus Netflix's 223 million. Subsequently, Disney assured investors in Q4 that it expects operating losses to "narrow going forward" as it works toward achieving profitability for Disney+ in fiscal 2024.
According to Grand View Research, the streaming market was worth $59.14 billion in 2021 and will see a compound annual growth rate of 21.3% through 2030. Disney's hefty content spending in 2022 was concerning, but being the leader of the high-growth market could pay off big in the long run.
Box office revenue is back
Disney experienced weakness in critical parts of its business throughout most of 2020 and 2021 as pandemic closures cut off revenue from theme parks and theaters. Last year's reopenings saw audiences and box office revenue gradually return, and in 2023 the film industry will likely get close to pre-pandemic form.
In fact, Disney has already made positive strides toward reclaiming its losses in its media and entertainment segment with the release of Avatar: The Way of Water. The sequel to 2009's Avatar hit $1.7 billion at the box office on Jan. 8, becoming the seventh-highest-grossing film in history after only four weeks. Variety reported that the film cost $350 million to produce, suggesting Disney has hit profitability with the new movie.
Additionally, the House of Mouse has a stacked release schedule for the rest of the year, including three Marvel blockbusters and the last Harrison Ford-led Indiana Jones film. In 2023, the combination of decreased content costs and boosted box office revenue could go a long way toward growing Disney's media profits.
Disney is maximizing parks profits
After nearly two years of theme park closures, Disney welcomed guests back in droves in 2022. In Q4 2022, parks revenue soared 36% year over year to $12.7 billion while the segment's operating income more than doubled to $1.5 billion. Even as rising inflation lowered demand in other industries, Disney's park attendance remained high.
As a result, the company used the past year to restructure its parks with a priority on increasing its revenue per person, which would safeguard it if further economic declines reduced attendance. In 2022, Disney raised ticket prices worldwide and began charging for once-complimentary services such as its Fast Pass program.
However, after some discontent from consumers, Disney rolled back some of its price increases in January. After all, spending per person had increased nearly 40% since 2019. Charges related to vehicle parking at its hotels and ride photos have been revised, and the company has increased the number of park days available at the lowest price point.
However, Disney has not reduced ticket prices, and for good reason. Chairman of Disney Parks, Experiences and Products, Josh D'Amaro, noted on Jan. 12 that the price revisions are not about demand but a way to show fans "we're listening to them." Even with price hikes, park attendance has remained high with several days at California's Disneyland sold out in January.
Disney's booming parks business is a strong asset as it continues growing its media profits and pushing its streaming business toward profitability by 2024.
