Thinking of buying Disney shares? Here’s what you need to know
With its ubiquity in cinema and all kinds of entertainment, Disney (NYSE: DIS) is no secret from Wall Street. At the same time, its cutting edge products and services don’t automatically mean you have to run out and buy Disney stock.
Like any stock purchase, Disney stocks require careful and thoughtful analysis. Here’s what you need to know as a starting point.
Disney’s entertainment offerings are head and shoulders above all competitors. For example, revenues for its 12 theme parks reached $ 16 billion in fiscal 2020, down 61% year-over-year. But it was way ahead of NBCUniversal (a division of Comcast (NASDAQ: CMCSA)) five theme parks (part of its total operations, which includes many other companies) that grossed $ 1.8 billion in 2020, or theme park operator Sea world Entertainment‘s (NASDAQ: SEAs) 12 theme parks, which grossed less than half a billion dollars in 2020.
Total Disney sales in 2020 were down 6% year-over-year, complemented by an excellent performance before the pandemic. In the first quarter ended December 28, 2019, sales increased 36%, and in a still strong second quarter, revenue increased 21%. In 2021, the company is still suffering from declines linked to the pandemic. But that improved to a 13% drop in the second quarter of 2021 ended April 3. Potential shareholders should note that this number is still 7% higher than in the second quarter of 2019. The first quarter, with a 22% drop, was 14% higher than in 2019. Impressive given the circumstances.
Each of Disney’s components ranks first or close in all of its categories. The company’s theme parks and resorts were its largest category before the pandemic, accounting for more than a third of the total in 2019, the same year Disney had seven of the top 10 grossing films.
Disney + has been a huge success, recruiting over 100 million paid subscriptions since its launch in November 2019. It’s behind the leader Netflix (NASDAQ: NFLX), but it is getting closer. The company estimates it can reach 260 million by 2024, potentially overtaking Netflix, which had 208 million subscribers as of March 31.
He’s looking to streaming not only to take over from closed theme parks, but as the key to future growth. It acquired the general streaming site Hulu in 2019 and began launching a similar brand, Star, in international sites. Between these sites, as well as ESPN +, Disney is trying to dominate streaming as it dominates all of its categories, and it’s definitely blessed with success.
Is it resilient?
The initial answer would be no. Disney is not a core business like Amazon or Costco who can work well under difficult circumstances, and he was pummeled during the pandemic.
But that would not take into account all the information.
In fact, investor confidence in Disney shares is high, as evidenced by a 43% gain over the past year despite declining sales.
This is because even though he is struggling in the short term, he has the tools to return to growth when the economy recovers. The launch of Disney + is exceeding expectations, giving it leverage in this emerging market. Disney has four films to release over the next four months, positioning it to generate sales as people return to the theaters. When the fleets are all open and at full capacity, sales should skyrocket. If the business can launch new, successful initiatives when the cards are down, that’s definitely resilience.
It suspended its dividend to maintain a strong cash position as sales fell, but before the pandemic it issued and increased its dividend steadily. This will likely pick up when sales return to growth, providing another incentive for shareholders.
If you buy Disney stock now, expect some short-term volatility. But the price is slightly lower since the start of the year on Monday morning, so that could be an opportunity to acquire shares before the price goes up.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.