I know many disagree with this person, heck some of their takes have made me side eye, but I thought this was interesting. Curious what our community feels of this perspective?
The full thread:
Since Disney's $DIS earnings were released, there has been a lot of talk about the stock price.
Which can be confusing bc the stock is down around 30% from April's high, even though Disney has released two record shattering films: Inside Out 2 and Deadpool vs Wolverine.
1/25
While Disney's stock is doing better than any other legacy media companies this year, Comcast/Universal and Sony are down TWICE as much as Disney and don't even talk about Warner Bros Disc or Paramount.
Netflix is way up, but they don't deal with linear tv or theaters.
2/25
So, yay Disney for being the best of the legacy studios. BUT, it's no win to be down 4% ytd when both the NasDaq and S&P500 are both up 12% and the Dow Jones is actually +4% (Disney was the best performer in the Dow earlier this year).
3/25
It is important to note that S&P and Nasdaq were both HEAVILY buoyed by being cap-weighted and including Microsoft, Nvidia, Google, Facebook (Meta), Amazon and Apple.
But none of those excuses matter if you're a Disney shareholder. So what's going on?
4/25
First, it is clear that media is a tough business right now. WBD, Para, Comcast/Uni, Sony... they're all struggling. Even the latter two who have strong broadband and tech divisions.
The rapid decline in linear television has been MUCH faster than the growth of streaming.
5/25
It also hasn't been great that the box office has been a bit more anemic than pre-Covid. Sure, Inside Out 2 is the highest grossing animated film of all time, Deadpool v W has broken R rating records, Avatar 2 top three all-time, etc.
But..
6/25
But, the middle of the box office has fallen off. Sure. there are blockbusters, but the constant flow of romcoms, some horror, and coming of age films have been pushed to streaming. Taking a small, but important, cut from box office receipts.
7/25
Then again, box office receipts have never been huge revenue drivers for Disney. Remember, they split the box office with exhibitors and the marketing budgets are huge, so a "haircut in box office receipts" is not really Disney's main problem. Their films do great.
8/25
The biggest issues are:
1. Linear decline (this can't be understated, ABC, ESPN, Disney Channel, and the local affiliates were CASH COWS, probably 95% of Disney's current issue)
2. Cost of competing in streaming (launching D+, integrating Hulu)
...
9/25
3. Cost of sports (this connects to Linear decline and cost of launching streaming. Sports rights are spiking all while revenue from owning networks that air sports is drying up.
4. Theme Parks are no longer considered growth division (they never should've been)
10/25
The real story is primarily #1 Linear decline, #2 Cost of streaming, and #3 Sports costs... those three combined is basically the entire story of legacy media issues.
But I want to dive into #4, Disney's theme park division. As this has spurred a lot of confusing takes.
11/25
Disney's Parks division have been beaten up. They were fully shut down a few years ago, there was a multi-year reopening, all in the middle of some major expansion projects.
All of this at a time when Disney was launching their streaming to quickly replace fading linear.
12/25
Disney had no option but to lean heavily into their theme parks to help replace the lost box office from theater shutdowns, the lost revenue from the earlier park closures, the fading revenue from linear, the increase cost of sports, and cost of launching streaming.
13/25
After they reopened, Parks quickly caught up to pre-covid levels of revenue, and Disney was forced to tout parks as a sign of growth, since steaming was not making a profit and linear was clearly fading away.
This worked and investors were impressed with revenue growth.
14/25
But the parks were never meant to be a growth division. They were Disney's "work horse," chugging away every day and bringing in reliable revenue, hand in hand with linear, to help fund buying Marvel, Lucasfilm, Pixar, and 20th Century Fox.
15/25
As investors started worrying about the cost of streaming and linear decline, Disney understandably pointed to their theme park revenue growth. It was impressive and helped settle investors fears.
But investors started to expect too much from the theme parks.
16/25
Look at the headlines from this week, one would think Disney theme parks were burning down. In reality, the division grew 2% YoY last quarter, generating $200m more than last summer. Which is solid for a legacy division of a legacy company, but not for a growth division.
17/25
The 2% GROWTH in rev is even more impressive when compared to Universal theme parks, that saw a 10% DECLINE in revenue over the same period.
So Disney parks are staying strong, a slight single digit dip in revenue is expected next qtr, but the bottom is not falling out.
18/25
Why is the stock getting battered if things are "just fine?" Well, investors have grown to expect big growth from the parks, even if it defied logic.
There is only so much that this division can grow year over year.
19/25
Disney's parks should be looked at as a reliable workhorse that can be "juiced" occasionally for short-term cash needs, rather than a division that can maintain double digit growth year after year.
Even with massive expansions, there is a limit to growth and growth rate.
20/25
Disney's parks are unique bc they're also extremely sensitive to macro economic pressures. A downtown in the US economy (or China, Japan, and France) has immediate effects on the parks.
Folks cut and postpone travel in tough times, before they cut streaming services.
21/25
So if investors need to think of Disney's parks as reliably stable w/ strong earning capacity, but a limited growth rate, where should they look for Disney's growth potential?
And that my friends, is where we are today.
Disney's stock price is stalled b/c of this question.
22/25
Their biggest growth opportunity is obviously streaming, but this division (DTC) is not only nascent and only JUST profitable, it is also simply a replacement for a diminishing linear division.
So is streaming really growth, if it is just supplementing a dying medium?
23/25
I would argue, yes. BUT, not yet.
Disney has huge potential for massive growth in their DTC division, but it is not going to happen anytime soon. But they are heading in the right direction. It is just going to be extremely expensive and will take time.
24/25
Another growth area is Disney's cruise division. It is wildly popular and ranked highest among guests for their unmatched service.
They have three new ships coming in the next few years. This will help boost the Parks division. The problem is that these ships are VERY expensive and take YEARS to complete.
So, should Disney launch the three new ships and let their small fleet of 8 work for a few years to boost some cash flow before spending more to build more ships?
That will take 5-10 years.
Or should they boost their construction of new ships to expand their share in the cruising industry?
That will cost billions.
It isn't an easy decision. Does Disney allow itself to become a value stock, generating reliable dividends, or should it push itself to be seen as a growth company, but risking their short term cash flow?
Investors seemed to want the latter. Pushing Disney to spend spend spend on streaming, but then they pulled the rug out and it cost Bob Chapek his job.
While misguided fans like to call Chapek cheap, he was literally pushed out because investors said he was over-spending.
So that doesn't seem like a good route.
So, what? Do they throw the car in neutral and take a hit in the stock price short term and clearly move to a legacy reliable 100+ year old company and let the kids (Netflix) and tech companies (Apple, Amazon) fight over who is the real maverick in media?
There is no clear answer. Investors are not clear about what they want and Disney seems a little hesitant to go all in either way. Either all in or all out.
So, here we sit with a stock price in the mid $80s. Wiggling up to 90 every now and then.
I know folks are hoping to get some guidance at D23, and they night get some, but I don't see an easy answer.
As a huge Disney fan, I hope they throw fiscal conservatism out the window and lean very heavily in theme park, cruise ship, and streaming investments. Taking a huge hit in cash flow, but knowing the long term gain will be there.
But, if I set my "fan hat" aside and look at the company from a strict investment perspective, I don't know if it is really that bad of an idea to let things marinate a bit. Let the cruise shjps launch and grow, let the international park expansions settle, let the streaming services consolidate, sell off some assets, and continue to release big movies that help drive interest in parks, streaming services, and consumer products.
Whichever they decide to do, I hope they make it clear soon.
I don't think the stagnant stock price is because of anything Disney is doing wrong, rather, I think it is due to Disney not making it clear where they're going from here. All in...? Neutral and coast...?
Pick a lane and fully commit.
25/25