With the S&P 500 now only down 3% in 2020 after regaining much of its pullback during the coronavirus market crash, it is becoming increasingly difficult to find stocks that still look like bargains. But there may be a surprisingly compelling buyout that investors are overlooking, none other than the media giant. Walt disney (NYSE: DIS).
Many investors have been scared by the impact of the pandemic on Disney’s theme parks and sports networks, which has left the shares trading 22% below what they were earlier in the year. While the company will undoubtedly face some short-term challenges as consumers spend more time at home and sports struggle to regain their media importance prior to the coronavirus pandemic, the action may be oversold, particularly due to to the company’s drive in other areas that benefit from blockages and travel restrictions.
Hulu and Walt Disney-owned Disney + could be the company’s primary catalysts in 2020. Image source: Hulu.
Investor concerns are valid
Investors have good reason to be concerned about the impact of COVID-19 on Disney. In mid-March, the company closed its national parks, resorts, and cruise line businesses, as well as Disneyland Paris. This followed a temporary shutdown of its Asian parks earlier this year when the coronavirus swept through China.
While Shanghai Disneyland reopened and Tokyo Disney Resort recently began welcoming guests, Disneyland Paris and the company’s national theme parks remain closed. Sure, the company is slated to reopen its Paris and Florida parks later this month, but there is concern that new daily cases in Florida could delay an internal relaunch.
Additionally, the company’s media networking business accounts for significantly more than half of Walt Disney’s operating income, and ESPN is the primary driver of this business. With professional sports on hold, scheduling and advertiser interest in the gigantic sports network will likely be impacted and impact the company’s performance in 2020.
Disney’s impressive streaming business
Fortunately, however, Walt Disney began a timely transition from its television studios and operations to a streaming power in 2018 and managed to launch its highly anticipated Disney + flagship streaming service late last year. While Disney + started with high pent-up demand, subscriber growth took off sharply when people began taking refuge and working from home to help curb the spread of the coronavirus. At the end of the company’s second fiscal quarter on March 28, Disney + had 33.5 million subscribers. But by April 8, this number rose to 50 million subscribers.
Beyond Disney +, another streaming service that likely benefited from an increase in subscribers during the coronavirus was Hulu, the main streaming service that Disney took full control and ownership of last year. This service ended the fiscal second quarter with 32.1 million subscribers, but paying members are likely to jump sharply through early April, the same way Disney + caused the locks to lead to more TV broadcasting.
Looking ahead, there is another key part of Disney’s streaming plans that is likely to help fuel strong growth: ESPN +, a sports streaming service the company launched in 2018. While the momentum of the service is likely to stop. While many sports are on hold, the app could become a primary catalyst for the company when the economy reopens.
Disney has become a streaming power in a very short period of time, and this is probably just the tip of the iceberg in House of Mouse’s early efforts to build a direct-to-consumer broadcast business. Investors who buy Disney stock today can buy the company’s popular brands and theme parks while they’re on sale, and they can also gain access to a thriving streaming business that is experiencing an accelerated boost from this home environment.
