The Walt Disney Company (DIS) specializes in producing fantasies and rides involving magic and adventure. But 2021 hardly proved to be magical or thrilling for the company.
The easing of pandemic restrictions and the subsequent reopening of movie theaters and theme parks were expected to boost revenues for the company. For a while, that script seemed to be going according to plan. That is, until it went awry.
During the second half of 2021, the entertainment behemoth found itself involved in lawsuits with stars. Its streaming business, which had been going gangbusters until then, reported declining declining growth in the number of subscribers. And the company had to shut down its theme parks due to COVID scares.
No wonder, then, that Disney was among the Dow's worst performers in 2021. What should investors expect from the company in 2022?
- Disney was the Dow's worst performer in 2021, but 2022 might be better.
- The COVID omicron variant's relatively muted effects should spell good news for Disney's theme parks division.
- Disney's content investments into its streaming service should reap subscriber gains in the second half of this year, according to some analysts.
Heading Back Into the Parks?
According to Bank of America analyst Jessica Reif Ehrlich, Disney is "well-positioned for the recovery, driven by a continued increase in capacity at theme parks and an improving content slate."
Theme parks returned to profits in 2021 for Disney. The rise of the omicron variant of COVID-19, however, could lead them into losses again. Last year, the company had to shutter the Shanghai Disneyland due to a COVID scare. Based on available evidence, however, the omicron variant's effects are expected to be, at least on paper, shorter and contained.
During the company's previous earnings call, Disney CEO Bob Chapek said that he was expecting "great demand" for the parks segment this year. "[The demand] is not only internationally but especially domestically, but particularly, again, because of our guest experience improvements at numbers that are very, very strong and very, very healthy," said the CEO, referring to the theme park app technology enhancements that minimize in-person interactions. The return of crowds should spell good news for Disney's revenues from the segment.
Disney Plus Additions
The same cannot be said of Disney's streaming business—Disney Plus. For most of 2020, growth in the number of Disney Plus subscribers powered gains in the company's stock. Investors, enamored with glimpses of future streaming profits, pumped money into the company's stock and drove it higher, despite a complete economic shutdown.
But 2021 proved to be a reversal of that story. Subscriber additions to Disney Plus slowed, and investors punished the stock. The House of Mouse plans to spend $33 billion on content in 2022. It also plans to expand the geographic footprint of its streaming business by 50 more countries by the end of 2022. Those factors should help the company amortize production costs by attracting more subscribers to the platform. But it is still unclear whether the subscriber additions will occur at the pace required by investors.
Some analysts are betting that it will be. Tim Nollen of Macquarie Investments stated in a recent report that Disney is a "long-term winner" in the streaming wars. "Our bullish thesis around Disney stock has centered around strong direct-to-consumer subscriber growth and a cyclical recovery at the park and theatrical businesses," he wrote. Analyst firm Evercore ISI has predicted an addition of 48 million subscriptions, mainly toward the second half of the year, in 2022. Disney plans to reach between 230 million and 260 million subscribers by September 2024.
Revenue prospects for Disney from theaters also look bright. The global box-office is expected to rebound strongly to $33.2 billion in 2022, a roughly 58% increase from 2021 figures. Disney could account for a significant chunk of that revenue with its releases, which include a sequel to its 2009 smash Avatar.