Disney moves into reopening mode — continues to benefit from growth in its streaming business – The Average Joe

    Disney moves into reopening mode — continues to benefit from growth in its streaming business

    Victor Lei — Head of Research

    March 9, 2021

    March 9, 2021

    Leash up your kids — Disney received the go-ahead to open up its theme parks in California on April 1 and with lockdown restrictions easing in the US, Disney is seeing strong demand for its parks. For investors, a recovery play could be in the works.

    How did the pandemic go for Disney?

    Bad enough for Disney to shutdown its theme parks around the world, lay off 32,000 employees and record its first quarter of losses in 20 years. The impact on its 2020 earnings numbers:

    • Sales from its parks, experiences, and products — which makes up more than a third of its revenue — fell 37% from COVID shutdowns
    • Disney lost $2.4b in 2020, compared to earning $11b in 2019

    Despite Disney’s largest business unit coming to a near halt — total sales for 2020 only fell 6%. While Disney’s parks business struggled, its online business thrived and so did its stock — surging 93% in the past year to reach a record high.

    Growth in all directions

    COVID accelerated the growth of its streaming business — growing to 94.9m subscribers in just 15 months (comparison: it took Netflix 20 years to get to 100m).

    Its direct-to-consumer (DTC) units saw an 81% growth in sales. And now, Disney is doubling down on its DTC units:

    • E-commerce — Last week, Disney said it’s closing 20% of its stores to focus on e-commerce
    • Streaming — plans to release 100+ new titles to its streaming services each year with titles from key franchises — Star Wars and Marvel

    In 2020, Disney committed $14-16b/year on streaming content — which could fuel the growth in other parts of its business…

    The Disney flywheel — more Disney+ subscribers → more fans → more merchandise sales → more Disney theme park guests

    For investors… Disney really is magical

    Not many businesses benefit from COVID and economies coming out of COVID. Disney is one of those companies:

    • During COVID, Disney’s streaming business thrived
    • Post-COVID — As lockdown restrictions end, Disney could benefit from the travel demand and see a recovery in its parks business

    Looking even further beyond COVID, investors are focused on one metric: # of Disney+ subscribers — which is expected to reach 260m by 2024. While streaming and e-commerce are still one of its smaller businesses, the majority of its growth is expected to come from these units.

    Learn more: Disney makes a big move to streaming, here’s everything you need to know

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