What if we told you Disney would shutter parks and dock cruise ships during a big chunk of the busy season, do a phased reopening with limited capacity that could last well beyond a year, start a global battle with Netflix and the stock would essentially double over the period?

Since the onset of the pandemic nearly a year ago when Disney stock hit a 52-week low of $79.07 in March, shares have more than doubled, closing out last week nearly 130% higher. On a year-over-year basis, the stock is up nearly 30% compared with about 17% for the S&P 500 index. Those are facts.

What is more, adjusted earnings for Disney in the fiscal year that ended Oct. 3 collapsed by 64%, the company reported. And that came after a 94% earnings pullback in its fiscal Q3. And when the world’s largest entertainment conglomerate unwraps its Q1 earnings Thursday, Wall Street is widely expecting another deep double-digit dive compared with year-ago results.

What is going on in the Magic Kingdom? Not much. Remember, the theme parks and cruise ships went dark during last spring’s lockdowns and have slowly begun reopening the gates at limited capacity since then. When Disney shutters a park, it loses not only the gate revenue but also those hotel, dining, and shopping dollars as well.

Do not forget, too, like every other major Hollywood studio, Disney, which produces movies out of Pixar, Marvel, and Walt Disney Studios had to halt film releases in theaters and carefully orchestrate moviemaking in the age of COVID. It laid off 32,000 workers last year, saw ad revenues from ESPN dribble away, and has struggled with its retail operations.

Disney’s share price story seems to rest with Wall Street’s anticipation that once the world harnesses the coronavirus and its variants, and vaccinations become more widespread, everything will be all-systems systems go at the House of Mouse as pent-up demand is unleashed.

Oh, and there’s Disney+ to consider, analysts said. Since a marathon investor day in December, analysts have largely been upping expectations based on Disney executives’ guidance and the onslaught of movies they expect to be released soon. They also widely believe Disney’s future is as much in direct-to-consumer (DTC) experiences as it is in theme parks and movies.

The Battle with Netflix

Disney+ might underscore how quickly a DTC streaming business can grow—if circumstances (like sequestered families and limited entertainment alternatives) present themselves.

With only one birthday under its belt, Disney+ was reaching 86.8 million subscribers as of Dec. 2, the company reported at its investor day. That was up nearly 20% from the 73 million subscriber base as of the end of Q4. Analysts said they will be listening for fresh numbers and comparing the trajectory to internal forecasts that see the base tripling by 2024—to a jaw-dropping level of between 230 million and 260 million subscribers. Disney executives have also said they plan to up the price a buck to $7.99 per month.

Though NFLX is the king of streaming services that Disney hopes to dethrone, there are plenty vying for a place in the palace: Disney’ Hulu and ESPN+, Apple’s Apple+, Amazon Prime Video, Peacock, part of the Comcast family and AT&T’s HBO Max.

Disney’ DTC Impact

With Hulu and ESPN+, the DTC segment—which includes its international subscriber count—accounted for some 26% of total revenue last year, marking an 81% jump on a year-over-year basis. Analysts said they expect double-digit results again as its deals with AAPL, Alphabet, Roku, and others continue to grow. Add in those subscriber numbers and Disney has claims on 137 million subscriptions.

How Many Movies?

Investor day seemed like a bombshell for analysts based on some of their reports afterward. The company unveiled a bounty of announcements, including its plan to release more than 100 movies and shows tied to its successful franchises such as Star Wars, Indiana Jones, Marvel, National Geographic, and FX.

Among the new shows on the docket are Loki, additional seasons of The Mandalorian, and Raya and The Last Dragon, and newbies such as “Jungle Cruise,” an adventure film based on Disney’ theme park of the same name.

Disney is also bringing out a general entertainment content leg it’s calling Star, which will be placed on Disney+ with a Star banner in Europe, Canada, Australia, New Zealand, and Singapore, the company said.

Those announcements helped lead to several upbeat analyst calls. “Our call has been dead wrong,” Light shed Partners analyst Richard Greenfield wrote about a month after the investor day. He noted his team “focused on how the market under-appreciated the impact of COVID-19” on fiscal 2020–2021 earnings. “We were simply blown away (on investor day) by the depth of content being created for Disney+ (and the financial oomph behind it).

What’s Ahead

Buoyed by the push into streaming, analysts said they also want to hear updates on when Disney thinks it may be back to full steam in the theme park and cruise ship businesses based on current global realities, and how the company might be tweaking the businesses to meet a higher bar of personal comfort. Theme parks are built to pack people in with crowded shows, ride queues, and resort pools. These are all logistical challenges in a socially distant world.   

Disney’ retail business might also be ripe for a few tweaks, as revenues from movie paraphernalia and other cross-platform marketing have fallen short and may struggle to return to the way they once were.

So, while the place for fun and frolic deals with the impact of COVID-19 closings and consumer hesitancy toward anything geared for crowds, Disney is leaning into streaming like never.

“We are prioritizing our DTC platforms—both in terms of how we distribute our content and also through our increased investment in original programming for Disney+, Hulu, ESPN+,” Kareem Daniel, Disney’ media and entertainment chairman, told investors and analysts in December.

“By significantly ramping up production for these services, we will not only accelerate the growth of our DTC businesses but also solidify our deep and very personal relationship with consumers globally,” he added. Stay tuned.

Disney Long (Buy)

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