If you consider investing in The Walt Disney Company (NYSE: DIS), you should know a few things. First, the company is making an aggressive shift in how it delivers content to consumers. That's a consequence of changing consumer habits, which is causing significant losses at its cable channel division.
The House of Mouse is also making important strides in recovering from effects of the pandemic. At its onset, Disney paused its semi-annual dividend and shut its theme parks. Now, despite operating under some pandemic restrictions, Disney's theme parks have reopened and are stronger than ever.
Let's look at these and some other factors in more detail below.
Image source: Getty Images.
1. Streaming transition
Disney kicked off its entry into the streaming content industry in earnest in November of 2019. That's when it launched its flagship service Disney+. In arguably the most incredible product launch timing ever, Disney introduced the service right before the pandemic's onset. The outbreak created a surge in demand for in-home entertainment, and Disney+ thrived. It has since reached 130 million subscribers as of Jan. 1, 2022. Overall, Disney boasts 196 million streaming subscribers across its three services (Disney+, ESPN+, and Hulu).
2. Cable subscriber exodus
Disney's streaming services are rising as consumers turn away from traditional cable TV. Streaming services are more convenient and often less costly. Folks can hook up their Disney+ service to their smartphones, tablets, and laptops and access it anywhere they get the internet. That's a stark contrast to a cable subscription that can only be enjoyed at home.
In the most recent quarter, revenue in its linear networks remained flat. Meanwhile, operating income fell by 13% year over year to $1.5 billion from $1.7 billion. The trend is unlikely to reverse, and investors should expect the segment to suffer continuing losses for the next several quarters.
3. Dividends on pause
On May 5, 2020, shortly after the onset of the coronavirus pandemic, Disney's board of directors announced that it would pause its semi-annual dividend payment. The action saved the company $1.6 billion in cash based on the $0.88 dividend per share it paid to shareholders in January 2020.
The dividend payment remains paused as of this writing. However, management could reinstate the dividend anytime now, considering the improving financial conditions and lessening impacts from the pandemic.
4. Theme parks are stronger than ever
Speaking of improving conditions, Disney's theme parks are thriving. In its most recent quarter ended Jan. 2, the segment that includes theme parks more than doubled revenue to $7.2 billion from the $3.6 billion reported in the same quarter of the prior year. Operating income also grew to $2.45 billion following a loss reported in the same quarter last year.
That puts the segment on pace to surpass results from the 2019 fiscal year when it generated $26 billion in revenue and $6.7 billion in operating income. The increase in profitability resulted from management's initiatives undertaken while parks were shut down. These include higher prices for admission, concessions, and parking. Additionally, Disney has implemented mobile ordering and contactless check-ins at hotels and resorts, reducing staffing needs.
Of course, this is not an exhaustive list of everything you should know about Disney, but it should get you off to a solid start in your consideration of buying Disney stock.
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Parkev Tatevosian owns Walt Disney. The Motley Fool owns and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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