The Most Magical Stock On Earth

Where is Disney Going with Increased Prices & Spinoff?

If you’ve contemplated a trip to any of the Disney theme parks lately, it’s possible that checking the ticket prices left you in a state of shock. But rising park costs aren’t the only price hikes on the horizon for Disney fans. In the coming months, Disney will increase the cost of its streaming platform, Disney+.

In another twist, an activist is calling for Disney to let ESPN spin off on its own.

How do all of these changes impact the future of Disney stock prices? Let’s take a closer look at the changing marketplaces for Disney’s many revenue streams to illuminate where the future of Disney stock might be headed.

DIS Stock Trends

DIS stock hit a low for the year in July 2022, but that’s not stopping the company from pushing forward with some major price changes.

Another wrinkle in the plans are the calls of David Loeb, an activist investor from Third Point, to let ESPN spin off from the popular streaming giant. A letter by Loeb outlined his opinion that an ESPN spinoff would allow the network to pursue new business initiatives, like sports betting. While it seems unlikely that Disney will pursue a spinoff at this time. But with the idea out there, it’s possible it will gain traction at some point.

Each of these events is impacting Disney’s stock price. And, of course, world events beyond the company’s control are impacting prices as well. But let’s explore actions within Disney’s power that the company is taking to improve its economic outlook.

Disney in the United States

In terms of domestic channels, Disney’s revenues increased by 2% for the third quarter of 2022, which led to $5.7 billion. The increased operating income of $2.1 billion translated to more profitable results for both cable and broadcasting channels.

Also, domestic Disney parks and resorts saw outstanding revenue, thanks to the newly implemented park prices measure. For a deeper dive into the numbers, check out the latest Walt Disney Company financial report.

International Performance

For its international channels, the company saw revenues for the quarter increase to $1.5 billion. The operating income for this revenue was $200 million. The company attributes lower-than-expected results to the increased cost of sports programming, including the cost to air 64 Indian Premier League cricket matches.

International parks didn’t see as much growth as domestic parks. In fact, some Disney parks abroad have been open for a very limited number of days due to some remaining COVID 19 restrictions. For example, Disneyland Shanghai was only open for three days in the previous quarter, which means revenues were understandably down.

Direct to Consumer

Within the United States, Disney’s main income stream aside from its theme parks is its streaming services. Streaming services are considered a direct-to-consumer model.

In the third quarter of 2022, the company boasted 14.4 million new Disney+ subscribers. With that, the streaming service now has a total of 221 million subscribers. This surge puts Disney’s streaming service ahead of Netflix, which USA TODAY reported had 220 million subscribers.

But the growing number of subscribers doesn’t mean that Disney+ is profitable yet. The company reported that the revenues for the quarter were $5.1 billion, with an operating loss of $1.1 billion.

Disney’s direct-to-consumer arm also consists of Hulu+ and ESPN+. Both of these streaming services also posted losses for the quarter. According to the company, the lower results of both Hulu and ESPN+ stemmed from higher programming and marketing costs, some of which were recouped by new sign-ups.

In the coming months, the direct-to-consumer components of the company will see major price changes. The price of Disney+ without ads will increase from $7.99 per month to $10.99 per month. Additionally, Disney will soon offer an ad-supported option at $7.99 per month.

Hulu+ subscribers will see the ad-supported version increase to $7.99 per month, and the ad-free version will increase to $14.99 per month. ESPN+ will increase its prices to $9.99 per month. The bundle of all three streaming services without ads will keep the same price point of $19.99 per month.

The coming price changes are likely intended to bring Disney’s direct-to-consumer component into the green. But that elusive profitability may take more time than executives anticipated.

Disney Parks

Disney parks, colloquially known as the happiest places on Earth, had an outstanding quarter. The company saw the Parks, Experiences, and Products section produce $7.4 billion in revenue. That’s considerably higher than the $4.3 billion for the same time last year.

The company attributed the rising revenues mainly to park goers returning to the U.S.-based parks after a hiatus due to the pandemic. With higher volumes of guests and increased spending per guest, the company had a big quarter.

One of the ways the U.S. parks increased their revenues was hiking park prices. The costs for annual pass holders and other park goers have increased. Plus, Disney introduced Genie+ and the Lightning Lane earlier this year to significantly increase the amount of revenue per park goer.

Bottom Line on DIS Stock

With the recent market volatility, there have been some ups and downs, but Disney stock is handily beating Wall Street’s targets. Does that make it a good time to buy stock in this nostalgia-filled company with its eyes to the future?

Some stock market analysts see bright things in Disney’s future. Keith Noonan, a Motley Fool contributor, recently published a piece stating, “Disney stock isn’t without risk factors, but it looks like a worthwhile buy at current prices. While growing in the streaming space will probably be costly and the company’s traditional TV business could decline, the overall business continues to look very strong.”

Many seem hopeful about Disney’s future in the streaming business. Plus, the reopening world economy means that more guests are pouring into Disney parks and opening their wallets to live out the vacations that COVID-19 put on hold.

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