As best I can, I’m going to try and sum up the bull thesis on global media giant Disney (NYSE:DIS) stock in one paragraph.
In one month, Disney will launch its highly anticipated Disney+ streaming service. This will be a watershed moment for Disney stock. Disney will go from antiquated media giant fighting against cord-cutting trends, to a next-generation media giant benefiting from secular streaming media tailwinds. This pivot, alongside sustained healthy growth in the Parks, Media, and Studio businesses, will boost Disney’s revenues, margins, and profits, and ultimately push Disney stock higher over the next several years, as Disney+ goes from fledgling upstart, to global streaming titan.
I honestly think the bull thesis on Disney stock is that simple. Buy Disney stock because Disney+ will undergo tremendous growth over the next several years — without compromising growth meaningfully in other segments — and that growth boost will put DIS stock back on a winning trajectory.
The investment implication? Treat DIS stock as a buy-and-hold situation. You’ll get choppiness in the near-term as Disney+ goes through some growing pains. But, come 2025, the Disney stock price will be much, much higher than where it sits today.
Disney+ Will Be Huge
I have very little doubt that Disney+ will be huge. Consumers are already paying to watch Disney content. The company sells over 300 million-plus box office tickets in the U.S. and Canada every year, on about 10 movies a year, so about 30 million tickets per movie.
Movie tickets fetch $10 on average, and closer to $20 during premiere times. That means that there are at least 30 million people in those two countries who are paying $10-$20 to watch a Disney movie just once — and probably far more, because it’s not the same 30 million people watching 10 different Disney movies.
Reasonably speaking, that number could be closer to 60 million or more. There are 360 million people in the U.S. and Canada, so somewhere between 8% and 16%-plus of consumers in those two countries are willing to pay $10-$20 to watch a Disney movie just once. Those same consumers would likely be willing to pay under $10 per month to watch multiple Disney movies, as many times as they want, whenever they want.
Extrapolate that out globally. At the midpoint (12%) in a world with 4.5 billion internet users, that implies a serviceable addressable market of 540 million users. Assuming an average household size of three, that equates to a realistic long-term target for Disney+ of 180 million subscribers.
That’s a lot more than the 75 million subscribers Disney is projecting by 2025. Sure, it may take Disney+ longer than five years to get to 180 million. But, Netflix (NASDAQ:NFLX) added 100 million subscribers over the past five years, and streaming adoption tailwinds are only gaining momentum. Why can’t Disney add 100 million-plus over the next five years?
They can, and they will. As they do, Disney stock will roar higher.
Disney Stock Has Strong Upside Potential
Disney stock will roar higher if Disney+ outperforms because, all else equal, the upside/downside in Disney stock is all about Disney+
Indeed, all else is equal here. The Parks and Studio businesses are doing great. Those segments will continue to do very well for the foreseeable future because consumers love theme parks and Disney movies. Disney’s treasure trove of content IP and track record of strong production together imply that their movies will be great for a lot longer. Meanwhile, the Media Networks business is struggling, but TV ads are still a thing, and will remain a thing so long as most consumers consume traditional TV.
The Parks, Studio, and Media Networks businesses at Disney all project to do just fine over the next several years. Where will the upside/downside in Disney’s performance come from? Disney+. That’s the wild card. If Disney+ is a huge hit, Disney stock will soar. If it’s a dud, Disney stock will drop.
I think the evidence overwhelmingly suggests that Disney+ will be a big success over the next five years. As such, Disney stock projects to move higher over the next five years, too.
Bottom Line on DIS Stock
Big picture, big success for Disney+ over the next few years will translate into big gains for DIS stock. That’s why Disney stock should be treated as a buy-and-hold situation.
A word of caution here: Disney stock may struggle in the near-term. Look at the DIS stock price over the past five years. Disney stock essentially went nowhere for several years, and all the sudden in 2019, broke out of its slump thanks to management unveiling a clear game-plan for Disney+. Clearly, a lot of optimism is priced into Disney stock with respect to Disney+. All new services have growing pains. If Disney+ goes through these growing pains (at it probably will), Disney stock could suffer.
Such pain will be short-lived. Longer term, Disney+ will move past growing pains, and march towards 100 million subscribers by 2025. That march will ultimately push Disney stock higher.
As of this writing, Luke Lango was long DIS and NFLX.