The most magical stock on earth

Where is Disney headed with increased prices and spinoffs?

If you’ve been considering a trip to one of the Disney theme parks recently, checking ticket prices might have left you in shock. But rising park prices aren’t the only price hikes on the horizon for Disney fans. In the coming months, Disney will increase the cost of its streaming platform, Disney+.

In another twist, an activist calls on Disney to leave ESPN to fend for themselves.

What is the impact of all these changes on the future of Disney stock prices? Let’s take a closer look at the changing markets for Disney’s many revenue streams to shed some light on the future of Disney stock.

DIS Stock Trends

DIS stock hit a low for the year in July 2022, but that’s not stopping the company from moving forward with major price changes.

Another wrinkle in the plans are calls from Third Point activist investor David Loeb to let ESPN part ways with the popular streaming giant. A letter from Loeb outlined his view that an ESPN spinoff would allow the network to pursue new business initiatives, such as sports betting. Although it seems unlikely that Disney will pursue a spin-off just yet. But with the idea out there, it’s possible it will gain traction at some point.

Each of these events has an impact on the price of Disney stock. And, of course, world events beyond the company’s control also impact prices. But let’s explore the actions within Disney’s power that the company is taking to improve its economic prospects.

Disney in the United States

In terms of national channels, Disney’s revenue increased 2% for the third quarter of 2022, which led to $5.7 billion. The increase in operating income of $2.1 billion translated into more profitable results for the cable and radio broadcasters.

Additionally, Disney’s domestic parks and resorts reported exceptional revenue, driven by the new park price metric. For a more in-depth analysis of the numbers, check out The Walt Disney Company’s latest financial report.

International performances

For its international channels, the company saw revenue increase for the quarter to $1.5 billion. Operating profit from these revenues was $200 million. The company attributes lower-than-expected results to the increased cost of sports programming, including the cost of broadcasting 64 Indian Premier League cricket matches.

International parks have not grown as much as national parks. In fact, some overseas Disney parks have been open for a very limited number of days due to some remaining COVID 19 restrictions. For example, Disneyland Shanghai was only open for three days in the previous quarter, which naturally meant revenue fell.

Direct to consumer

In the United States, Disney’s main source of revenue outside of its theme parks is its streaming services. Streaming services are considered a direct-to-consumer model.

In the third quarter of 2022, the company had 14.4 million new Disney+ subscribers. With that, the streaming service now has a total of 221 million subscribers. The increase puts Disney’s streaming service ahead of Netflix, which USA TODAY said had 220 million subscribers.

But the growing number of subscribers does not mean that Disney+ is still profitable. The company said revenue for the quarter was $5.1 billion, with an operating loss of $1.1 billion.

Disney’s direct-to-consumer arm also includes Hulu+ and ESPN+. Both of these streaming services also posted losses for the quarter. According to the company, Hulu and ESPN+’s lower results were due to higher programming and marketing costs, some of which were recouped through new signups.

In the coming months, the company’s direct-to-consumer components will see major price changes. Disney+ ad-free will be priced from $7.99 per month to $10.99 per month. Additionally, Disney will soon be offering an ad-supported option at $7.99 per month.

Hulu+ subscribers will see the ad-supported version increase to $7.99 per month, and the ad-free version will increase to $14.99 per month. ESPN+ will increase its prices to $9.99 per month. The ad-free package of all three streaming services will retain the same price of $19.99 per month.

The upcoming price changes are likely aimed at bringing Disney’s direct-to-consumer component into the green. But that elusive profitability may take longer than executives expect.

Disney Parks

Disney Parks, known colloquially as the happiest places on earth, had a stellar quarter. The company saw the Parks, Experiences and Products section generate $7.4 billion in revenue. This is considerably higher than the $4.3 billion for the same period last year.

The company attributed the rise in revenue primarily to park-goers returning to U.S.-based parks after a pandemic-related hiatus. With higher guest volumes and increased spending per guest, the company had a strong quarter.

One of the ways US parks have increased revenue has been to raise park prices. Costs for annual pass holders and other park visitors have increased. Additionally, Disney introduced Genie+ and Lightning Lane earlier this year to dramatically increase the amount of revenue per park visitor.

Conclusion on DIS stock

With recent market volatility, there have been ups and downs, but Disney stock is easily beating Wall Street targets. Is it the right time to buy shares in this nostalgic and forward-looking company?

Some stock analysts see bright things in Disney’s future. Motley Fool contributor Keith Noonan recently posted an article stating, “Disney stock is not without risk factors, but it looks like a worthwhile buy at current prices. While growth in the streaming space will likely be costly and the company’s traditional TV business could decline, overall business continues to look very strong.

Many seem optimistic about Disney’s future in the streaming business. Additionally, the reopening of the global economy means more and more guests are flocking to Disney parks and opening their wallets to experience the vacations that COVID-19 has put on hold.

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Herman C. Harkins