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Bob Chapek Strikes Back... and more
Disney CEO Bob Chapek is not a terribly popular guy. Since taking over from Bob Iger two years ago, he’s been accused of penny pinching and price gouging as Disney Parks admission fees skyrocket and formerly free perks (RIP FastPass and Magical Express) disappear.
Fan discontent even recently reached the point that some hope to oust Chapek at the company’s annual meeting in March. But, after Disney posted blowout earnings earlier this month, it’s hard to imagine that shareholders would agree to such upheaval. Chapek pulled a rabbit out of his hat at just the right time.
The Mouse reported big beats on revenue, earnings, and all-important Disney+ subscriber growth. 11.8 million new subs joined Disney’s flagship streamer last quarter, bringing the total to an impressive 129.8 million. A bullish Chapek even reiterated his goal for 230-260 million subscribers by the end of 2024.
That’s Netflix territory.
The Disney boss also hinted at a possible D+ price hike coming in 2023. Cue groans from fans and cheers from shareholders.
Right now, a $1/month increase would boost D+ revenue by a healthy 12.5%. But the big money will come when Disney hits that ambitious 2024 subs goal. Then, even modest price bumps would mean hundreds of millions of extra dollars rolling in each month.
That’s what gets the suits (and me) so excited about the future of streaming.
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Chapek’s other sticky wicket has been the once (and future) cash cow Disney Parks division. When Covid broke out, the Parks worldwide shut down and, later, tentatively reopened with limited capacity and strict social distancing guidelines. Not surprisingly, these restrictions really did a number on Disney’s financials.
Happily, the Disney Parks impressed in Q1 2022 with $2.6 billion of net income growth. That puts the Parks on pace to surpass 2019’s profitability numbers. Not bad considering many Covid restrictions are still in place. Maybe, just maybe, the Parks are ready to resume their role as big-time moneymakers.
Other hopeful signs:
More than 33% of Walt Disney World guests purchased either Genie+ or Lightning Lane (the new paid successors to FastPass) — and that jumped to 50% during the crowded Christmas rush.
Per-capita spending at both Disneyland and WDW rose more than 40% compared to The Before Times.
Love ‘em or hate ‘em (and I really don’t expect anyone to love ‘em), Chapek’s price hikes at the Parks seem to be working.
And just wait for the international guests, who stay longer and spend more, to come back. Disney will be laughing.
Valuing $DIS is still tricky, though. You really need to throw out the company’s financials from the past few years, as the mega-acquisition of 21st Century Fox in 2019 was followed hot on its heels by Covid, which combined to completely upend Disney’s balance sheet.
Covid, in particular, hit every non-streaming corner of the company. The Disney Parks closed, the Disney Cruise Line remained stuck in port, and high-priced theatrical movies suddenly had nowhere to release.
Oddly enough, though, as Disney lost money in 2020, its stock soared. You can thank Disney+ for that. Then, as business slowly improved in 2021 and 2022, $DIS sunk from a high of $203.02 down into the $130s before rebounding to around $150. It’s been quite a rollercoaster.
So where does that leave us today?
In my opinion, Disney’s $8.36 earnings per share from 2018 provides a fair baseline for valuing the stock. 2018 is the last time circumstances even vaguely resembled “normal” for Disney.
Using that 2018 number, $DIS now trades around 18x earnings. Not bad, not great.
Even though Disney is not a screaming buy right now, it’s still the kind of company that you patiently keep an eye on, grab at a lower price, and then hold for a lifetime.
For whatever reason, Disney IP doesn’t get old and stale. Audiences today clamor for Mickey Mouse and Snow White just as much as they did back before World War II. Disney boasts a timeless staying power that no other entertainment company can match.
Charlie Munger once described Disney’s ability to use the same characters and stories dreamt up in the 1920s and 1930s (and in every decade since) over and over again as akin to “an oil company that can put the oil back in the ground after it's done drilling, so it can drill again”.
It’s good to be the Mouse.
Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.