Theaters Are Struggling, But Disney Stock Does Not Have To

Movie theaters have struggled through the pandemic. But in the face of challenge, Disney drafted a good plan. Today, MavenFlix looks at the company’s streaming strategy.
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The pandemic has not been good for movie theaters. To comply with CDC guidelines, AMC and Regal went as far as shut down all their locations in 2020. Yet, Disney seems to have done a good job diversifying its business model to deal with the recent challenges.

Figure 1: Walt Disney's Mickey Mouse hat.

Figure 1: Walt Disney's Mickey Mouse hat.

(Read more from MavenFlix: Traditional TV is Dying, And Netflix Stock Stands To Benefit)

From the box office to the homes

Disney has traditionally been a box office leader. Its latest hit, Avengers: Endgame, raked in the most ticket revenue of any movie ever, at nearly $900 million in 2019. In addition, Disney has released several other top-grossing titles that have been key sources of revenue since the company’s entry into film production. See chart below.

Figure 2: Worldwide box office earnings of the highest-grossing movies.

Figure 2: Worldwide box office earnings of the highest-grossing movies.

But due to the pandemic, global box office revenues fell 93% in October of last year compared to the same period in 2019. With ticket sales falling off a cliff, movie studios felt the pain of suddenly not having an audience anymore.

The typical solution was for studios to hold their releases until a later date. Vertically integrated production companies that had direct access to its target market, on the other hand, had the luxury of going down a different path.

What Disney did

Rather than playing defense, Disney drafted a good offense strategy. The company quickly realized the changing dynamics of consumer habits: namely, a shift from theaters to home entertainment. Some of Disney’s new releases were then channeled through its nascent streaming service, Disney+.

To be more precise, Disney bet on a hybrid approach. Some of its movies were released directly to Disney+ (Luca); some only to theaters initially (Shang Chi); while others debuted simultaneously in theaters and on paid services like Disney+ (Black Widow) .

This way, Disney hedged itself against a potential “bear market” in cinemas. In case of a return to the old normal, the company still had access to the big screens. In case of a new post-pandemic normal, Disney could now count on streaming as its distribution channel of choice.

Our opinion

Of course, choosing whether to invest in a company’s stock involves much more complex analysis. But based on the information above, Disney seems well prepared to take advantage of future trends in content consumption.

As streaming becomes a bigger theme for Disney, valuation multiples could expand to reflect better growth prospects and, maybe, a higher margin profile. Because Disney stock  (DIS) - Get Walt Disney Company Report is still stuck in the mud, having barely moved any higher so far in 2021, the investment opportunity could be compelling at current levels.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)