In 2023, Walt Disney (DIS 1.58%) will enter its second century of business. The achievement solidifies its position as one of the world's most successful entertainment companies, likely to still be around another 100 years from now. As a result, it's a company every savvy investor should have on their radar.
The entertainment industry has had a challenging few years, with the pandemic closing theaters and theme parks and stifling companies' revenues in 2020 and 2021. Reopenings throughout the last year have offered a significant boost. However, those in the streaming industry have had to contend with steep competition that required hefty content spending.
Disney has had ups and downs over the last few years but has continued growing thanks to its resilient business. Here are three things smart investors know about the Walt Disney Company, and you should, too.
No. 1: Surpassing the streaming king
Disney entered the streaming industry by becoming a stakeholder in Hulu in 2009, later gaining a 60% majority stake in the platform after it acquired 21st Century Fox in 2019. However, Disney fully immersed itself in the booming market, launching its flagship streaming service, Disney+, in November 2019. The platform has vastly altered the market and quickly attracted more subscribers than any other platform.
Netflix (NFLX -0.44%) had a near monopoly on streaming for over a decade, but Disney's recent addition to the industry has changed all that. In the first quarter of 2022, Netflix's market share stood at 23%, while Disney's Hulu and Disney+ took up a leading 25%. Then in Q3 2022, Netflix's market was 21%, while Disney had retained its 25%.
Disney also surpassed Netflix for most subscribers in the industry in Q3 2022 and retained its leading position in Q4 2022, with a combined 235.7 million subscribers against Netflix's 223.1 million. The company's ability to dominate streaming in three years proves the power of Disney's content and the promise of its future in the industry.
No. 2: Disney+ headed toward profitability
The biggest concern for Disney investors in the company's latest quarter was the expense of Disney+. Over the last year, Disney has sunk $30 billion into content, heavily investing in expanding the platform and achieving its current position as the king of streaming.
As a result, in Q4 2022 Disney's media and entertainment segment saw revenue fall 3% year over year to $12.7 billion, while operating income decreased by 91% to $83 million. However, the company's parks business pulled more than its weight, with revenue soaring 36% year over year to $7.4 billion and operating income rising over 100% to $1.5 billion.
While Disney's content spending throughout the year is concerning, the company has assured shareholders it will decrease this figure in 2023. The company revealed in its Q4 2022 earnings report that it expects its "operating losses to narrow going forward" and for Disney+ to "achieve profitability in fiscal 2024."
With its position at the top of the industry secured, the company can begin to focus primarily on profits. Considering any stock investment should be based on long-term growth, Disney's future as the home to a highly profitable streaming business and successful parks segment cannot be ignored.
No. 3: Making inroads in the live service games market
Live service games are video games where companies aim to generate continuous revenue via microtransactions. The offerings within games could include cosmetic accessories, such as skins, or extra game content. Live service titles are often released as either free-to-play or premium titles that include optional purchases within the game.
While Disney has staunchly focused on its streaming business in the last couple of years, it has also made inroads in the lucrative live service market, with titles such as Disney Dreamlight Valley, Marvel Snap, and more.
According to GlobeNewswire, the video game microtransaction market is worth $67.6 billion and will surpass $106 billion in 2026, a compound annual growth rate of 11.9%. As a result, many companies have entered the industry in recent years. For instance, Electronic Arts runs live services across more than 25 games, with microtransactions making up about 70% of its bookings. Disney has not disclosed the exact revenue its games have made so far, but Marvel Snap has picked up a lot of steam since its release in June. It has reached over five million downloads on Alphabet's Google Play Store and won Mobile Game of the Year at the Game Awards. Meanwhile, Disney Dreamlight Valley hit one million players 10 days after its release on Aug. 23 and will go free-to-play in 2023, likely attracting many more players.
With rapid success in its streaming business headed toward profitability, a flourishing parks business, and a promising venture into live service games, Disney stock is an excellent long-term investment. It has footholds in nearly all aspects of entertainment and will likely continue dominating the industry for decades.