Walt Disney DIS has under-performed as a stock over the past 12 months, shedding nearly 45% of its value. That's not because of how the company has performed or its future potential to deliver strong results, it's short-term sentiment dragging down a company that should be a long-term cornerstone of your portfolio.
The company has handled pandemic-related shutdowns, massive changes in the ability to make money with theatrical releases, and changing demand for streaming services. While doing that Disney has shown that it can shift as the market does, using its incredible roster of intellectual property (IP) to find an audience wherever that audience might be.
Despite the challenging economy, inflation, high gas prices, and fear of a looming recession, the Mouse House has put up strong numbers:
- Revenues for the latest quarter and six months grew 23% and 29%, respectively even with the company giving up $1 billion in licensing revenue for shows and films it wanted to bring back to its own platform.
- Earnings per share (EPS) from continuing operations for the six months ended April 2, 2022 increased to $0.89 from $0.52 in the prior-year period.
It's hard to spin these as bad results, but Disney's stock price has dropped by about 36% in the past year putting it near its 52-week low. That's the market getting it wrong and it creates a huge opportunity as a long-term buy for three big reasons.
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1. Disney Theme Parks Have Pricing Power
Disney's theme parks suffered during the darkest days of the pandemic, but they have bounced back from a $505 million loss in the year-ago six month period to a $3.7 billion profit over the past two quarters. That has happened despite high airfares and general worries about spending among the American people.
That's because Disney theme parks have become a high-end travel experience where the company's steady price increases on everything except admission don't really impact the core audience. The company can sell its Genie+ and Lightning Lane positions while charging more for food and adding more after-hours added fee events while limiting attendance (to a point) and delivering a better experience.
Higher prices and (slightly) lower capacities create a better user experience which drives customer satisfaction. Disney isn't pricing its theme park for everyone. It has made them a premium experience for people who can afford it.
2. Disney Has the Best IP
Netflix (NFLX) just spent the most money it has ever spent on a movie on something called "The Gray Man," a blockbuster film not based on familiar characters or set in a universe that has a built-in audience. The movie might be a success, but it's a huge risk for the streaming service.
Disney just finished its six-part "Obi-Wan Kenobi" series starring the beloved character and taking fans back to the Star Wars universe. It has countless shows planned based on Star Wars as well as more from Marvel, Pixar, and its well-known library of stars. The Mouse House still has to make good shows and movies but it does not have to work very hard to get the public interested.
That IP, of course, also translates to the company's other markets -- everything from consumer goods to theme parks. Disney has the characters people want to see with and an endless amount of stories to tell. with those characters.
3. Disney Can Offer Premium Experiences
People mocked Disney when it launched a Star Wars hotel that costs more than $5,000 for a two-night trip. The reality is that Disney can deliver experiences that people will pay pretty much any amount for. That's why it's hard to book the opportunity to pay over $200 to build a lightsaber at Star Wars: Galaxy's Edge.
In addition it's why Disney can offer high-end restaurant experiences, and have a family friendly cruise line that charges exponentially more than its closest rivals. The company has its streaming network, cable channels, and movies for people of modest to moderate incomes, but wealthy people like Star Wars, Marvel, Pixar, and even Mickey Mouse. That allows Disney to make money from pretty much everyone and charge very high prices for select experiences.
