Disney’s (NYSE: DIS) massive popularity has made it synonymous with entertainment in the hearts of the masses.
Yet, the pandemic has been hard for the company. While the Disney+ streaming platform was bringing a steady stream of recurring revenues for the company, its theme parks, cruises, and film franchises failed to deliver as per expectations as they are totally dependent on consumers’ ability and willingness to get out and spend money.
The post-pandemic recovery has also been slower for Disney due to which investors have suffered around a 12.6% year-to-date loss. Still, considering the company’s present measures as well as the past glory, the market is bullish about the stock and feels it might rally again in 2022.
The Walt Disney Company, popularly known as just Disney, is an American multinational entertainment company that had established dominancy in the American animation space before diversifying into live-action film production, television, and theme parks.
The company possesses 12 global theme parks plus resort areas and cruise lines, providing one of the most prized vacation destinations to families across the globe. It also produces several blockbuster films and owns rights to many studio franchises that furnish both its studio arm and parks segment with numerous sales opportunities
The COVID-19-related restrictions did hinder the company’s performance this year. Still, it is considered as a “forever stock” that one can continue to keep holding in the long run. The market believes Disney’s position in the entertainment industry is such that opportunities have by large become self-generating for the company.
Jessica Reif Cohen of Bank of America Securities is also bullish about Disney stock. In the last month, she said that as the worst of the COVID impact is seemingly over, Disney’s operations should rebound by the second half of Fiscal Year 2022, driven by international visitation, cruise ship ramp, [direct-to-consumer] content uptick, pent-up demand and opportunities in sports betting.
COVID-19 Effect Has Started Fading
Theme Parks and Resorts has been Disney’s greatest source of revenue. However, post-pandemic the company had to cut down on its capacity due to a combination of health concerns and staffing challenges. Now, all the Disney parks, resorts, and cruises can return to their full capacities, and thus this segment can potentially become the company’s top-earner once again.
Moreover, the virus had also substantially affected the company’s box office earnings. As movie fans start returning to the cinemas again, the company’s Entertainment business will get another chance to bounce back.
Further, on the basis of the last quarter financials before the pandemic the company believes if those parks and movie theatres return to the pre-COVID-19 attendance levels, it will be able to add $26 billion in revenue in those segments alone.
Disney has been taking several measures to grab more visitors. Disney World has widened its operating hours a bit by letting its visitors enter a full hour early. So, if the spike in Disney’s business turns out to be as expected, then the company’s valuation will be positively impacted.
Financials to Get Better
The pandemic had made a dent in Disney’s operations. Disney’s fourth-quarter financials for Fiscal Year 2021 did not meet most analysts’ expectations as the company’s recovery didn’t go as planned.
Its Q4 reports state that revenue for the quarter was 26% higher year-over-year, while the nine-month revenue saw a mere 3% annual growth. However, the profit margin witnessed quite an improvement and the company was able to earn profits this quarter. Moreover, the free cash flows position for the quarter also saw a 62% year-over-year improvement.
The Tipranks’ Stock Investors Tool indicates 15 out of 21 Analysts have given Disney a Buy Rating, and the remaining six of them have suggested a Hold on its shares.
The highest price target for the stock is $220, while the average Disney price target of $196.21 represents 26.4% upside.
Innovations to Pay Off
To grab more visitors Disney came up with the Genie, Genie+, and Lightning Lane+ systems a few months ago.
These in-park optimization apps use machine learning to provide more customized recommendations to users and replace the company’s old FastPass system.
Guests may use Genie for free, but need to pay $15 a day to access Genie+ that allows reservation of return windows for accessing the newly introduced expedited Lightning Lane queues in place of the old FastPass system. Moreover, the Lightning Lane+ requires guests to pay an additional surcharge for one-time hassle-free access to two rides in each of the complex’s four parks.
Further, Disney’s streaming service, Disney+ is another innovation by the company that has been a success. It has grabbed a huge chunk of the market despite competing with industry giants like Netflix and Amazon Prime Video.
Disney has been a popular choice for investors over the years. Though the stock has not been investor friendly over the past couple of months, that doesn’t mean it has completely lost its potential. Disney’s popularity is still the same amongst the masses and therefore the company would not need much time to regain its past glory.
Moreover, the new innovations made should also significantly contribute to attracting new customers who would add to the company’s profitability.
Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
