The Walt Disney Company (NYSE:DIS), an entertainment giant with a global reach, came under pressure in 2020 when mobility restrictions forced consumers to stay at home. Disney+, launched in late 2019, helped the company survive this challenging period. Additionally, Disney’s theme park business has made a soaring comeback in the post-pandemic era, and box office revenue for the first half of 2023 reveals a promising outlook for the theatrical business as well.
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Disney+ is being beaten down by macroeconomic challenges, but the company’s other core business segments are performing well. I am bullish on the prospects for Disney because of the improving strength of its major business segments and the long-term positive outlook for its streaming business.
Mid-Year Box Office Figures Establish Disney’s Dominance
Mid-year box office figures yet again highlight the immense value of an existing intellectual property portfolio. In 2022, nine of the 10 highest-grossing films were sequels, and in the first half of 2023, every movie in the top 10 list represents a top franchise or a part of a known brand.
According to Comscore, domestic box office collections totaled $4.35 billion in the first half of the year, a growth rate of 21% compared to the same period in 2022 and a staggering increase of over 350% compared to the first half of pandemic-stricken 2021. However, sales remained 20% below pre-pandemic highs registered in 2019.
Disney is home to some of the leading studios in the world, including 20th Century Fox, Pixar, Marvel, Lucasfilm, Searchlight, and Pinewood. The company accounted for over 30% of first-half ticket sales by collecting $1.36 billion, while Comcast Corporation (NASDAQ:CMCSA) came in second with collections totaling $1.13 billion. Disney and Comcast’s Universal finished 2022 as the top box office collectors as well, and 2023 is setting up to be another year of domination for these two entertainment giants.
An evaluation of Disney’s fiscal second-quarter (March quarter) results reveals how the company’s theatrical business is gaining traction after almost two years of disappointing performance. In Q2, the Content Sales and Licensing segment reported $2.19 billion in revenue, registering year-over-year growth of 18%.
This business segment accounts for several subsegments, including TV/SVOD Distribution, Theatrical Distribution, and Home Entertainment. The company reported a 14% decline in TV/SVOD revenue for Q2, but theatrical distribution revenue surged 224% to $767 million, erasing the revenue decline of the TV/SVOD segment.
Looking ahead, there is a strong lineup of theatrical releases for Disney in the second half of the year, which should help the company maintain the current momentum for the rest of the year. Some of the most awaited film releases include Haunted Mission on July 27, Chevalier on August 10, The Marvels on November 9, and Wish on November 23.
The Recovery Should Continue in 2023
After falling off a cliff in 2020 and 2021, global movie ticket sales have recovered sharply in the last couple of years. Gower Street Analytics, a leading London-based research firm, boosted its expectations for 2023 box office revenue last April, projecting revenue to hit $32 billion this year instead of its previous forecast for $29 billion in revenue.
If this expectation materializes, ticket sales will grow by 23% this year on top of a 23% increase last year to $26 billion. Even with this stellar gain, box office revenue will still remain substantially lower than the $42.3 billion reported in 2019 before the pandemic wreaked havoc.
The recent success of The Super Mario Bros, John Wick: Chapter 4, and Creed III highlights that moviegoers are once again flocking to theatres with pandemic fears subsiding. Similar to how the travel industry is benefiting from the pent-up demand for outdoor activities, Disney’s theatrical business is likely to gain traction in the coming quarters even amid challenging macroeconomic conditions, paving the way for the company to grow earnings.
Is Disney Stock a Buy, According to Analysts?
Wall Street analysts have been divided on the prospects for Disney of late. On June 29, KeyBanc Capital Markets analyst Brandon Nispel downgraded Disney, citing challenges faced by the company’s theme parks and the lack of clarity surrounding ESPN’s streaming push. Bank of America (NYSE:BAC) analyst Jessica Ehrlich, however, wrote on June 27 that she is confident about the content strategy of the company, including planned theatrical releases, and assigned Disney stock a price target of $135.
Based on the ratings of 17 Wall Street analysts, the average Disney stock price target is $121.47, which implies upside potential of 37% from the current market price.
The Takeaway: Disney’s Path to New Highs is Becoming Clear
Disney’s recent success with movie ticket sales highlights how the company is leveraging its brand assets to drive revenue and earnings growth. Its theme parks and theatrical businesses are coming back strongly from pandemic lows, and its streaming business can be expected to regain momentum in the long run once industry dynamics normalize. Disney, despite its massive scale, still has room to grow, making it an attractive stock to consider on the back of a disappointing market performance this year.
