Disney: changing for the better?

Since the humble beginnings envisioned by Walt, Disney’s transformation and growth has been nothing short of astonishing. The company has built a media giant on the back of the original theme park and merchandise sales, and now they’re looking to emulate Amazon’s success with a Prime-esque subscription model too.

Disney: Stock Of The Week

Starting with the chart… It’s hard to build a solid case for the bulls. Well down from the all-time-highs and trading back below the 20 day moving average again. However, the 20 day line is still sloping higher and this move down could be seen as a retest of the resistance turned support in the 110 area.

Bears can argue that it’s just a pullback in the overall downtrend, and the path of least resistance is to continue lower, especially after coming close to the 200 day moving average before sellers took command again.

Disney Prime?

The idea of building a subscription-type model is on the agenda. CEO Bob Chapek underlined this earlier in the year, saying that Disney has a “unique synergy machine, or franchise flywheel”. Basically, they have a shedload of products and services that people love, which means they can reach customers in many different ways.

The motives seem obvious. In 2017, Morgan Stanley ran the numbers and found that households with Prime memberships typically spent $3,000 per year with Amazon, double the amount that non-prime members spend!

Obviously the business models are very different, but the idea of giving members benefits in exchange for loyalty is as old as the hills. It also opens up the opportunity for cross-selling to customers. If Star Wars was your favourite ride in Disneyland, you can get exclusive early access to the new Star Wars spinoff series and you’ll LOVE this limited edition Yoda toy that’s ONLY available to Disney Prime subscribers (it’s unlikely to be called Disney Prime, but you get the idea!).

On top of this, a new strategic approach has been taken at theme parks. The company calls it yield management. In everyday terms, that means increasing the amount each visitor spends while in the park including features such as Genie+, a paid service that allows visitors to save time waiting in line, by using Lightning Lanes instead.

It’s working. Even though visitor numbers to Disney’s US theme parks remain below pre-pandemic levels, sales and profits hit record levels in the last earnings report.

Disney also filed a mixed securities shelf on Friday. Essentially, this allows the company to issue more shares without having to sell the entire issue at once. Instead, they can sell these at any point over a three-year period. Could they issue shares to raise funds and complete the acquisition of Hulu from Comcast sooner than expected?

Activist investors Third Point Capital (Dan Loeb) took a new stake in Disney in August, writing soon afterwards to CEO Bob Chapek urging cost-cutting measures and to complete the Hulu takeover ASAP.

“We urge the company to make every attempt to acquire Comcast’s remaining minority stake prior to the contractual deadline in early 2024”

“We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration but are cognizant that the seller may have an unreasonable price expectation at this time (while noting the seller has already made the decision to prematurely remove their own content from the platform.) We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months.”

Whatever happens with Hulu, there’s a lot going on at Disney. Will it be a fairytale ending?