How High Could Disney Stock Go?

Walt Disney Co (NYSE:DIS) is a long-standing and diversified mass media and entertainment company. This global conglomerate is one of the most recognized brands in the world and includes brands like Marvel, Lucasfilms, Pixar, ESPN, Hulu, and 20th Century Studios.

The company’s market value more than doubled in 2020 alone, prompting some investors to ask – how high could Disney stock go?

Disney’s theme parks were devastated by the pandemic travel restrictions. It’s an expensive endeavor that weighs on its books, but it didn’t put a dent in the House of Mouse. The company’s Fox assets, digital streaming platforms, and deep content pipeline is simply too strong to ignore.

Both Steve Jobs and Stan Lee trusted Disney to protect the intellectual property they spent their entire lives building. This vote of confidence shouldn’t be taken lightly, especially since it includes some of the biggest, most profitable IPs in entertainment.

Some bullish analysts believe the stock could hit $250.00 by the end of 2021, while bearish investors warn of current restrictions and pending dangers.

It’s time to read the script to determine if Disney can draw on its deep cache of content and wide distribution footprint to create profits for its investors.

Disney Theme Parks Capacity Restricted

Disney’s theme parks and cruises were closed when the first lockdowns were enacted. This was a part of widespread global travel restrictions implemented to stop the viral spread. The closures cost the company nearly $5 billion from March through June of 2020.

While its international theme parks in Shanghai, Hong Kong, and Paris remain closed, U.S. Disney theme parks are on a different path. These parks are in Florida and California, two big COVID hotspots, and the state governments have different ideas on how to handle the reopening.

Disney World in Florida reopened its Magic Kingdom, Animal Kingdom, Epcot, and Hollywood Studios in July 2020. Social distancing and wellness measures include temperature screening, mandatory masks, and keeping guests six feet apart.

The Florida theme parks were initially limited to 25 percent capacity and increased to 35 percent by year end. This caused headlines as holiday crowds flooded in December while the state became one of the worst in the U.S. for new cases.

Meanwhile, its Anaheim park kicked off 2021 as a mass vaccine site. The company is encouraged to help Orange County push below one coronavirus case per 100,000 people in the population. It can’t reopen until that happens, per California law.

Until all of Disney’s theme parks and cruises reopen, its cash burn rate will be accelerated. This will continue to create a drag and slow its growth opportunities. But thankfully, Disney has a diversified portfolio of assets.

Disney Has Diverse Assets

Theme parks and cruises represent just one of Disney’s revenue streams, even if it is the second-largest revenue source. The bulk of the company’s money is generated through its media networks, which include ESPN, Hulu, Disney Channel, ABC Television Networks, and more. This revenue stream earned $23.69 billion in the last year.

Disney also has a strong direct-to-consumer presence, along with licensing revenue anytime partners use its characters in its products and services. It no longer produces video games in-house, so all Marvel and Lucasfilm games are licensed, along with partnerships like Square on the Kingdom Hearts series.

It also makes a hefty profit from its studio entertainment, which is its content-creation branch. This revenue includes films produced by Pixar, Marvel Studios, Lucasfilm, and Walt Disney Pictures.

The company’s Disney Plus service combines the two and became a strong release platform during the pandemic. Disney kicked off a new movie distribution model by skipping theaters and debuting its 2020 live-action Mulan film directly on its Disney Plus platform.

In fact, Disney is a streaming juggernaut.

Disney+ Subscriber Base Skyrocketing

Disney Plus ended 2020 with 86.8 million paid subscribers, and it hopes to hit 230 million by the end of its fiscal 2024. This greatly overshadows the 36.6 million paid subscribers on Hulu and 10.3 million on ESPN Plus combined.

This is the best news for the company and its investors. It gives Disney a strong direct-to-consumer avenue, where it can generate profits from its core base of fans.

It’s no fluke either – the company launched alongside Apple TV and Quibi. All three attempted to become streaming kings, but Disney Plus is by far the only one with a shot at the crown.

Quibi (run by former Disney chief Jeffrey Katzenberg) only drew 5.6 million people through its free trial. It “only” managed to convert 10 percent of those users to paid plans and closed by October 2020.

Meanwhile, Apple TV Plus hit 33.6 million users by the start of 2020 but lagged through the year. Its lack of a wide pipeline of original content stunted its growth. This makes Disney Plus the only streaming service able to compete with Netflix’s 195.1 million paid subscribers.

But is it valued too high?

Is Disney Valuation Too High?

Disney had a market capitalization over $300 billion at the start of 2021. The company’s share prices fell to a 52-week low of $79.07 during the crash before skyrocketing to a high over $180.00.

Management suspended cash dividends in 2020 due to business uncertainty. It’s unlikely to return until its able to open all its international theme parks, resorts, and cruises.

Its fiscal year 2020 ended October 3, and it reported $6.54 billion in revenues for the year, a 6 percent year-over-year drop. Disney has $3.60 billion in free cash flow from the $7.62 billion in operating cash. It spent much of its overhead on closed theme parks and production studios.

Moving forward, the company has a lot to look forward to. Movies delayed from 2020 are finishing production and parks will eventually open. It’s only a matter of time.

How High Could Disney Go? The Bottom Line

Disney reached historic highs during the pandemic. This is in spite of having all of its theme parks and resorts closed and losing out on its second-largest revenue stream. By 2021, it’s still working to open its parks while the pandemic rages on.

Still, its Disney Plus streaming service was enough to get investors excited. Starting with Mulan, Disney turned the platform into a direct-to-consumer digital distribution platform. This helps it cut out the middlemen and gain the most profit from each of its releases.

Although its theme parks still struggle, Disney could double its value or more over the next five years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.