After a record year 2019 where waltz disney (NYSE: DIS) garnered 33.3% of the domestic box office gross, the media mogul’s momentum has been slowed due to the COVID-19 pandemic. But Disney hopes to buck the trend this year with a stacked slate of highly anticipated movies and exclusive Disney+ content.
It’s a good start with the movie Doctor Strange in the Multiverse of Madness and the positive reception of Obi Wan Kenobi on Disney+. But the company is losing money on its international parks as the closures weigh on its bottom line. Additionally, the company is missing out on key box office revenue streams from some of its biggest international markets, namely China.
Here’s a look at what Disney has in store for fans this year, as well as how its exposure to international audiences factors into the investment thesis.
What is Disney’s international exposure?
As a vertically integrated international media conglomerate, it’s no surprise that Disney is dependent on the global economy. Disney has six resorts, four of which are abroad (Paris, Tokyo, Hong Kong and Shanghai). Disney also owns five cruise ships, which attract international travelers. The company’s films are streamed around the world, and Disney+ is a global service.
During its second quarter fiscal 2022 earnings call, the company announced that Disney+ is expanding to 53 new markets in Europe, Africa and West Asia. In fact, most subscribers are international. Disney+ subscribers totaled 137.7 million at the end of last quarter, but only 44.4 million of those, or just over 32%, were domestic.
In fiscal 2019, which was Disney’s biggest box office year in history (not to mention its highest-grossing year ever), it raked in $3.76 billion. dollars at the domestic box office and $7.35 billion at the international box office for $11.12 billion in total. That year, about 10% of the media company’s total box office revenue came from China, thanks in large part to $614 million in ticket sales. Avengers: Endgame.
Missed opportunities in China
Shanghai Disneyland has remained closed since March 21, even as China eases its COVID-19 lockdowns. Hong Kong Disneyland reopened on April 21. But Shanghai Disneyland and Hong Kong Disneyland have been closed for much of the current year. That headwind contributed to an operating loss of $268 million for Disney’s international parks and experiences segment in the fiscal second quarter. On the other hand, National Parks and Experiences recorded an operating profit of $1.39 billion, and Consumer Products generated an operating profit of $638 million.
According to Box Office Mojo, Doctor Strange in the Multiverse of Madness collected $912 million in box office revenue worldwide ($391 million domestically and $522 million internationally), an excellent result. But the film probably would have been even better if it hadn’t been for the loss of revenue from China, Russia and Ukraine. For example, a similar performance film such as Captain Marvel generated over $150 million in box office revenue in China alone in 2019, so it’s safe to say strange doctor lost significant ticket sales in those markets.
Disney can handle its headwinds
Disney is undeniably exposed to international markets, but less than many investors think. For example, he holds a minority stake (47%) in Shanghai Disneyland. And National Parks’ performance was so strong in the last quarter that the company posted its highest parks, experiences and product revenue and operating profit for any second quarter in history. of the company, even taking into account its international losses.
The majority of box office revenue is international. But again, Disney has a history of generating about 10% of its box office sales from China. Thanks to its diversification, it can absorb a slowdown in many markets without suffering too much.
The biggest concern for Disney is the threat of continued inflation and a potential recession in the United States, in addition to the international headwinds discussed. This double punch could lead to another downturn for the company and push it further away from its record profit in fiscal 2018.
Disney can’t control the broader economy, but it can lay the foundation for a strong content slate and make ongoing investments in its parks that strengthen its brand and set the stage for long-term growth.
Instead of overweighting Disney’s quarterly performance, it’s best to consider the big picture of the business the company is building and how well streaming fits into its on-screen and in-person experiences. The stock is down nearly 50% from its all-time high, but this is a well-balanced company to consider buying now.
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Daniel Foelber has the following options: Long Calls January 2024 at $120 on Walt Disney, Long Calls January 2024 at $145 on Walt Disney, Long Calls January 2024 at $155 on Walt Disney, Long Calls July 2022 at $145 on Walt Disney , Walt Disney $170 June 2022 long calls, Walt Disney January 2024 $125 short calls, Walt Disney January 2024 $150 short calls, Walt Disney January 2024 $160 short calls, short calls of $150 from July 2022 to Walt Disney and short calls of $175 from June 2022 to Walt Disney. The Motley Fool holds positions and endorses Walt Disney. The Motley Fool recommends the following options: January 2024 long calls at $145 on Walt Disney and January 2024 short calls at $155 on Walt Disney. The Motley Fool has a disclosure policy.
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