For decades it has entertained young and old, bringing the stuff of dreams and the fantasy world to life. And what began with a handful of animators producing short children’s cartoons has become a gem over the years, having transformed into one of the most iconic companies around the globe. With multiple international theme parks, a world-class animation studio, dozens of business franchises and one of the biggest movie studios available, Disney has become an entertainment industry titan.
Boasting a seemingly unstoppable ability to dominate every facet of the entertainment industry even in the wake of the COVID-19 pandemic that shut down theme parks and movie theatres, the multinational mass media and entertainment conglomerate continues to carry appeal and so does its stock. Now swinging big in the streaming industry, Disney is pushing through into the newest area of consumer entertainment, becoming a force to be reckoned with.
A brief history of Disney
It’s hard to believe that the company with a market cap of $323.52 billion as of January 11, 2021 started out in 1923 by brothers Walt and Roy Disney as the Disney Brothers Cartoon Studio. Walt was a talented artist, drawing cartoons for various publications, only to become interested in celluloid ‘cel’ animation after working for the Kansas City Film Ad Company.
Disney’s first major hit came in 1928 with the cartoon Steamboat Willie, debuting Mickey Mouse who went on to become one of the most beloved characters of all time. Other much-adored characters also came to life including Minnie Mouse and Donald Duck. Next came Snow White and the Seven Dwarfs, the first ever feature-length animated film. Made during the Great Depression, the movie went 400% over budget and required over 300 animators and artists, yet it was a success and went on to become the highest-grossing film of its era, earning more than $1.7 billion.
Following Snow White’s triumph, Disney moved its movie studios to Burbank, California to begin work on future classics, however, World War II brought the production of movies to a halt as the company helped the war effort by producing propaganda films for the U.S. government. During the 1940s, the entertainment powerhouse released its highly regarded film Fantasia, while it formed the Walt Disney Music Company. Disney’s true turning point came with the production of its first live-action film Treasure Island, while it ventured into television by launching several series, one of the most quintessential ones being The Mickey Mouse Club.
Disney diversified and expanded its business further by opening theme parks. Disneyland opened its doors in 1955, becoming a ground-breaking amusement park, eventually becoming an entertainment empire in its own right until this day. Following Walt’s death, the company continued to grow, taking advantage of merchandising opportunities, while continuing to produce feature films and constructing additional theme parks around the globe.
In the 1980s, Disney branched out into a wider market with the launch of the Disney Channel on cable TV. Then, the 1990s and 2000s were decades marked by a series of important acquisitions including Pixar, which produced films such as Toy Story, Cars and Finding Nemo, ABC, ESPN, Marvel Studios, which brought along its famous comic book superheroes, and Lucasfilm which put the legendary Star Wars franchise under Disney’s control. Other acquisitions included Twentieth Century Studios and Searchlight Pictures, amongst others, which helped the company market a more mature content typically not associated with its flagship family-oriented brands. Eventually, Disney expanded its business to cruises and radio while it also purchased the Anaheim Angels, a professional baseball team based in Anaheim, California.
Disney continued its digital expansion in the 21st century with the acquisition of YouTube content producer Maker Studios, which became the Disney Digital Network in 2017, while in 2019, it joined the streaming war with the launch of Disney+. By November 2019, 10 million users had signed up on its first day of availability and a year later, the company reported over 86 million subscribers.
Today, Disney operates under four business segments, the Media Networks, which includes domestic cable networks, broadcast television network and domestic television stations, as well as television production and distribution. The Parks, Experiences and Products segment consists of theme parks and resorts, while the Studio Entertainment division includes motion picture and music production and distribution. Lastly, the Direct-to-Consumer and International segment consists of streaming services, international television networks and channels, as well as other digital content distribution platforms and services.
In 1951, Thelma Howard was employed by the Disney family as a live-in-housekeeper and cook, taking on the role for three decades. She earned a modest salary, however, as part of her annual Christmas gift and birthday presents, the Disneys gave her shares in the company. Howard held on to her shares and by the time she died in 1994 she was a multimillionaire. Her estate was worth over $9 million, which was divided equally between her son and the Thelma Pearl Howard Foundation, which supports educational programmes in the arts.
When did Disney go public?
Prior to its IPO, Disney’s common stock traded for $3 per share over the counter (OTC), in other words, it was traded via a dealer network as opposed to on a centralised exchange, eventually rising to $52 per share before undergoing a 2-for-1 stock split. Then, in 1965 the company went public at a share price of $13.88 on the New York Stock Exchange (NYSE) under the DIS ticker symbol. The stock has been a component of the Dow Jones Industrial Average since 1991, while as of August 2020, just under two-thirds of its stock is owned by large financial institutions.
Since its IPO, the Disney stock has split eight times, with the first one being a 103-for-100 split, which means that for every 100 shares owned pre-split, a shareholder would now own 103 shares. The stock has also undergone three 2-for-1 splits in 1967, 1971 and 1973, while in 1986 and 1992, it underwent a 4-for-1 split. Then, in 1998, there was a 3-for-1 stock split, while its last split took place in 2007 with a 1014-for-1000 split. As a result, for each 1000 shares owned pre-split, a shareholder now owns 1014 shares. So, a 395,520-share position became a 401,057.28-share position post-split.
Despite the numerous splits, the company’s market capitalisation before and after each split took place remains the same, which means that although shareholders own more shares than pre-split, each is valued at a lower price per share. Often, a lower priced stock on a per-share basis has the potential to attract a wider range of buyers.
How much would an investment in Disney’s IPO would be worth today?
The Disney stock has proven to be an incredible investment over the years, offering big returns to investors who have held on to their stocks. Over the last 20 years, the stock has gained 599.34%, outpacing the S&P 500 by roughly 295.34%. A $5,000 investment at its original price of $13.88 would have gotten you around 360 shares. Bearing in mind all the stock splits that have taken place ever since, your 360 shares would have turned into 141,312 shares, so at a price of $116.50 per share, the $5,000 investment in the IPO would now be worth $16,475,566.
Is Disney stock a buy?
With some of its theme parks closed and others running at lower capacities, cruise ships firmly docked and people across the globe reluctant to take their family to their nearest multiplex for a matinee of the latest blockbuster, Disney was not expected to make much of a turnover in 2020. For its third quarter of 2020, it reported mixed earnings, estimating its operating loss for the quarter across all segments to be approximately $3.1 billion. Revenue for the Parks, Experiences and Products segment which also includes cruises, resorts and merchandise fell 85%, while the fact that the company has been unable to release a new film in movie theatres, has translated into a 55% slump of its studio entertainment revenues. Likewise, its stock tumbled more than 40% during the COVID-19 market crash.
However, Disney was on a healthy trend before the pandemic. Its revenue grew 26% from $55,137 million in 2017 to $69,607 million in 2019, while for the last 12 months, this figure stood at $65,353 million, just a slight decrease over 2019 numbers. At the same time, its stock is considered a long-time blue-chip stock and its price has increased 34.5% between 2017 and 2019. More recently, the stock has come back more than 95% from its post-coronavirus crash lows in March. In addition, its media networks revenue climbed 11% to $7.2 billion, while direct-to-consumer revenue, including streaming, jumped 41% to $4.85 billion.
Its reputation and the masses’ adoration of the entertainment powerhouse are other significant drivers. When Shanghai Disneyland opened its doors for the first time since late January 2020 with limited capacity, masks and social distancing measures in place, tickets sold out within minutes of its opening day. But Disney has also had some aces up its sleeve. With several movie theatres closed, the company took the decision to release its live-action movie Mulan straight on Disney+ as a one-time premium offering in most markets. Since the movie debut, Disney+ downloads have increased by 68%. And a few months back, the movie version of blockbuster Broadway musical Hamilton featuring the original cast also began streaming exclusively on Disney+. Then in October 30, season two of the critically acclaimed Star Wars series The Mandalorian premiered, which has the potential to drive more subscribers.
The company now has more than 137 million subscriptions worldwide across its streaming offerings that include Hotstar, Hulu and ESPN+, while Disney+ counts nearly 74 million subscribers globally as of its final quarter of 2020, marking a growth in the service’s subscriber base of almost 50 million since the start of the fiscal year.
What’s next for Disney?
As recently as December of 2020, the company announced its aggressive plans to boost its streaming services, particularly Disney+, which sent its shares soaring nearly 14% in just one day on December 11. Its plans to tap into content from ABC Studios, Twentieth Century Studios, Searchlight and other Disney-owned assets has positioned it to be highly competitive in the market and 2021 is expected to be even bigger as Disney+ is set to expand to Eastern Europe, South Korea, Hong Kong and other markets. As a result, Disney expects to have 230 million to 260 million Disney+ subscribers by 2024, up from its original estimate of 60 million to 90 million for the same period.
The Disney stock price also increased 25.276.6% in 2020 from $144.63 to $181.1854.14, ending the year at $175.72. With its online content serving as its main driving force, what remains to be seen is what happens with the rest of the entertainment giant’s business.
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