The Covid pandemic rocked Walt Disney (DIS).
It was a blessing in disguise.
When Covid hit, Disney had to close its theme parks around the world, and saw the movie business -- which it dominated -- disappear. That left the company with huge assets and the best intellectual property (IP) in the world without the ability to monetize all of those beloved characters.
It was an ugly time for the company that turned into an opportunity. Disney accelerated its plans for its streaming service, diverting films like "Hamilton," and "Turning Red" to the streaming service instead of theaters at a time when people were stuck at home starved for entertainment,
That created a perfect storm for Disney+. The streaming service rushed out to over 100 million subscribers (nearly 130 million at the end of the company's last quarter) and blew away its 2024 goals nearly immediately. The pandemic forced Disney to reconsider all of its operations -- including its theme parks -- and that actually made the company stronger.
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Disney Leans On Its IP, Technology
Disney has built its business around its IP. That started with Mickey Mouse and its classic cartoon characters and has grown to include Pixar, Marvel, and Star Wars. That's something that helped KeyBanc analysts Brandon Nispel and Evan Young decide to make Walt Disney a buy.
"Disney is unique in that it takes its intellectual property and converts it from digital into real assets, where the theme parks business is the best example of this. The sheer breadth of this IP is enormous and a key competitive advantage of Disney vs. any other media company, in our view," the duo shared. "The immersive storytelling is highly evident throughout its parks, and notably in all the attractions we visited, where the library of IP is practically endless and only limited in Disney's creative capacity."
Nispel and Young attended an investors' day event held at Disney World where they got to see some of the company's plans. They also spoke to Disney Ad Sales President Rita Ferro and Disney Streaming President Michael Paul.
"Disney's technology investment is front and center: the Company introduced the Magic Genie App in 2021, which coordinates guest experiences activities; Magic Band+ (coming in 2022), which does everything from unlocking hotel room doors to storing digital content and will have improved functionality; and a new reservation system that helps control parks attendance and visitation flow," they shared.
The KeyBanc analysts also seemed impressed by what Disney had coming next in terms of technology improvements.
"Disney is introducing Hey Disney, a virtual assistant. We believe Disney's use of technology is underappreciated across its businesses, but particularly in Parks, where we think the use of technology helps improve the customer experience, which we believe should lead to a sustainable improvement in operating efficiency and per capita guest spending," they added.
Disney's Business Has Room to Grow
Disney's business has changed become of the pandemic. The movie industry, for example, has become a game of blockbusters, where anything that does not star an Avenger, take place in the Star Wars universe or appeal to nearly everyone might make more sense as a streaming property.
The Mouse House has shown that it can win this game no matter how it's played. A film that once might have been a mid-tier box office hit now becomes a subscriber draw for Disney+. It's an evolving world, but Disney has shown it can make money across whatever platforms it needs to use.
Theme parks, however, can also be a major driver, according to Nispel and Young.
"Disney still is at just 75-80% of 2019 attendance levels, by our estimates, where there is clear upside, in our view," they said. "International visitation has yet to return, cruises have returned more slowly (though should pick up in the second half of 2022 (with the Disney Wish launch in July), and Disney is investing significantly in new experiences."
That has made them especially bullish on Disney stock.
"While most investors expect Disney Parks to fully recover, we believe they are too quick to discount their long-term growth potential, which we believe can continue in the mid-single-digits to the high-single-digits even after parks fully recover," they added.
