Walt Disney's (DIS +1.39%) 2023 is already off to a great start, but even better things could lie ahead for investors.
After a rough 2022, Disney reinstalled Bob Iger as CEO. Iger aims to get the company back on track and hand off a stronger Disney to a new successor in just a couple of years. And he's taking back the reins at a critical time for Disney and the rest of the media industry. The current environment is putting increased pressure on companies to show a profit from streaming. Meanwhile, the parks business could require Iger's touch after Bob Chapek's efforts led to a surge in park revenue, but displeased many guests.
With Iger at the helm and shares trading where they are, there's a lot of potential for the stock price to climb in 2023 and beyond.
NYSE: DIS
Key Data Points
Pushing toward streaming profits
Investors were not happy with the steep losses from Disney's direct-to-consumer business in 2022. 2023 may see significant progress toward profitability.
Iger has made streaming profitability a top priority for the business. That'll start with the price hike that went into effect last month. This includes an increase in price for those who signed up for a three-year promotional offer at launch that effectively brought the price down to about $4 per month. With its ad-supported tier and price hike, Disney will bring in about $11 per subscriber in developed markets like the U.S., Canada, and Western Europe.
There are also plenty of opportunities left to grow the subscriber base. The geographic expansion of Disney+ is far from complete, as there are still dozens of countries where people can't subscribe.
The new pricing structure also puts a big emphasis on the Disney bundle, which supports total revenue. The bundle is about $20 per month versus $10, $11, or $15 per month for ESPN+, Disney+, or Hulu as a stand-alone service. Not only does the bundle provide incremental revenue, but it also produces stronger customer retention versus the stand-alone services. Currently, 40% of Disney+ domestic subscribers are on the bundle, but the recent price increase for stand-alone services could push more toward the offer.
While growing the top line will push streaming toward profits, Iger also said the company needs to right-size operational expenses. That includes the amount the company spends on content and marketing. A pullback in marketing in the U.S. and other well-established markets for Disney+ could provide an immediate boost to profits. Meanwhile, decreasing the number of new series will provide a boost down the road as it amortizes fewer expenses over time.
The parks business could continue to grow
Disney's parks business came back strong in 2022, and that momentum could continue in 2023.
Parks and experiences revenue more than doubled year over year last year. After park closures limited attendance in 2021, pent-up demand and price increases led to a strong rebound. 2023 could see additional growth in park attendance. Disney's celebrating its 100th anniversary, and it's running promotional events to draw crowds. Additionally, Shanghai Disney is fully reopened following the end of China's zero-COVID policy.
One of the biggest factors driving revenue last year was an increase in how much each guest paid at the parks and hotels. Per capita guest spending increased by 18% at the parks and 16% at hotels. That includes the introduction of Genie+, a paid service that replaced the complimentary FastPass.
It's unlikely Iger will roll back many of the new revenue sources introduced amid the pandemic, but he may be able to appease customers going forward by offering more value with park tickets or Genie+. The company already announced some changes, including free photos and parking. Additionally, guests with annual passes can head to most of Disney's parks any day after 2 p.m. local time without reservations.
While many consumers are facing uncertainty, Disney parks remain a stalwart for many fans. With more opportunities for people to attend, parks revenue should continue to climb in 2023.
The stock is super cheap
Not only is the company moving in the right direction operationally, but its stock price is also extremely attractive.
Shares currently trade around 2.3 times sales. That's near the lowest multiple it's traded for in 10 years. Even after a run-up in the share price during the first few weeks of 2023, the shares look very appealing and could climb further.
With the expectations for continued steady revenue growth and improved profitability, Disney is poised to outperform the market going forward at its current stock price.
