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Highlights:
- Over the past 9 years, Disney saw a 5% CAGR revenue growth
- Streaming platform Disney+ comprises new growth engine
- Fast recovery of theme parks could drive revenue rebound
Q2 2022 hedge fund letters, conferences and more
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How Walt Disney actually makes money
Overview of revenue over past 3-years
- Media and Entrainment remains main revenue contributor
- Park & Experience segment was heavily impacted by the pandemic
Disney’s revenue continuously increased, but not exploded
- In the past 9 years, revenue grew at a solid CAGR of 5.3%
- The company survived the pandemic well thanks to its new streaming platform Disney+
- Revenue from streaming subscriptions partly offset the severe drop from its Park and Experience segment
But, past growth would not be enough to achieve US$100bn revenue
- If we were to assume that Disney continues its stable growth rate of 5.3%, then we would end up at US$79 revenue in 2024
- If we were to assume that Disney continues its stable growth rate of 5.3%, then we would end up at US$79 revenue in 2024
However, analyst consensus expect much higher growth
- Analysts expects Disney revenue to grow at 14.8% CAGR over the next 3 years
- This would result in US$102m revenue by 2024
Revenue forecast for Disney
- Rising costs for affiliate content and advertising should benefit Disney’s top revenue contributor
- Theater licensing could see a strong rebound as pandemic measures are lifted
Streaming platform Disney+ could be the main growth engine
- Within 2 years, Disney+ contributed US$12bn in revenue, which is around 40% of Netflix’s revenue
- As a comparison, Netflix started streaming services in 2007 and needed 10 years to get to US12bn in sales
Business model relies on economies of scale
- To increase revenue, streaming providers must focus on increasing quantity
- Given the intense competition, it is difficult to raise prices
- As of 2021, Netflix has over 200m subscribers compared to Disney + with 118m
Let’s assume Disney can grow to Netflix level in 3 years
- Disney+ would need to add another 100m subscribers in 3 years
- If the company can do so, it could generate around US$30bn in annual revenue
How I incorporate the story into my forecast
- Its streaming platform Disney+ is the main growth driver
- Reaching 220m subscribers by 2024 does not seem unrealistic
Parks and Experience segment could see a strong rebound
- In total, the company operates 12 amusement parks under the Disneyland brand
- Florida, California, Tokyo, Hong Kong, Shanghai, and Paris
- In 2021, it reopened all locations
- Only Chinese locations face frequent temporary shutdowns
- This could delay full recovery
Revenue forecast
- Within 3 years from now, this segment should have recovered fully from COVID-19 shock
- The company could indeed reach US$100bn revenue in 2024
Conclusions
- We imposed two main assumptions
- Full recovery of amusement parks, hotels, and merchandise revenue by 2024
- Disney+ reaches more than 200m subscribers by 2024 which is roughly equivalent to current Netflix subscribers
- Under these assumptions, the US$100bn mark is possible
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Article by Andrew Stotz, Become a Better Investor.
