Disney (DIS) stock soared on Tuesday after a Reddit user posted a bullish case for the entertainment giant on the popular r/wallstreetbets forum.
The Big D: Why Disney Is Undervalued
The Reddit user, who goes by the name of fredandlunchbox, argued that Disney is undervalued and has a lot of growth potential, especially with its streaming service Disney+.
The user claimed that Disney+ has been losing money, but that will improve as the company finds efficiencies and leverages its content production costs. The user compared Disney’s content strategy to a browser, which unlocks a lot of monetization opportunities.
The user explained that Disney spends $200 million to make a movie, which goes to the box office and makes $300 million, and then goes to streaming and makes another $100 million. The user said that there is no licensing cost for Disney, as its box office gains offset its TV production costs.
The user contrasted this with Netflix (NFLX), which spends $100 million on a movie and then puts it straight to streaming, losing $100 million. The user said that Netflix has to pay extra for every new show or movie it wants to make, while Disney’s movies are essentially free.
The user also dismissed the arguments that Disney’s movies have been flops, or that its content is too “woke” to make money. The user cited examples of successful movies such as The Little Mermaid, which made over half a billion in worldwide box office, and Barbie, which is expected to be the #1 movie of the year.
The Market Reacts: Disney Stock Jumps
The Reddit post, which was published on Monday night, quickly gained traction and received over 2,000 upvotes and 300 comments. Many users agreed with the bullish case and expressed their interest in buying Disney stock or options.
The market seemed to react positively to the post, as Disney stock jumped 4.5% on Tuesday, closing at $182.65 per share. The stock outperformed the broader market, which was mostly flat amid concerns over inflation and interest rates.
Disney’s market capitalization rose by $12 billion on Tuesday, reaching $331 billion. The stock is still below its 52-week high of $203.02, which it reached in March.
The Future: Can Disney Keep Up the Momentum?
Disney is one of the largest and most diversified media and entertainment companies in the world, with businesses spanning across movies, TV, streaming, theme parks, merchandise, and more.
The company has been hit hard by the COVID-19 pandemic, which forced it to close its parks, delay its movies, and cut its workforce. However, the company has also shown resilience and innovation, as it pivoted to streaming and launched new products and services such as Disney+, Hulu, ESPN+, Star+, and Premier Access.
Disney+ has been one of the company’s biggest success stories, as it surpassed 100 million subscribers in less than two years since its launch. The streaming service offers a vast library of content from Disney’s iconic brands such as Marvel, Star Wars, Pixar, and National Geographic.
Disney also has a strong pipeline of upcoming content for both its theatrical and streaming platforms, such as Avatar 2, Black Panther 2, Spider-Man: No Way Home, The Mandalorian Season 3, Loki Season 2, Hawkeye, Ms. Marvel, She-Hulk, Moon Knight, Obi-Wan Kenobi, Andor, Ahsoka Tano, and more.
Disney also has a loyal and passionate fan base that spans across generations and geographies. The company has a reputation for delivering high-quality content that appeals to a wide range of audiences and creates lasting emotional connections.
Disney also has a competitive advantage in terms of its global reach and distribution network. The company has a presence in over 200 countries and territories, and operates over 30 theme parks and resorts around the world. The company also has partnerships with various platforms and distributors such as Apple (AAPL), Amazon (AMZN), Roku (ROKU), Comcast (CMCSA), Verizon (VZ), AT&T (T), and more.
Disney also has a strong balance sheet and cash flow that enable it to invest in its growth initiatives and reward its shareholders. The company has over $15 billion in cash and equivalents on hand, and generates over $10 billion in free cash flow annually. The company also pays a regular dividend of $0.88 per share annually.
