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Shortly after the opening bell, we will be buying 100 shares of Disney (DIS) at roughly $158.69 per share.
Following the trades, the Charitable Trust will own 500 shares of DIS, representing 1.95% of the portfolio.
As noted previously, we expect shares to consolidate around current levels given that the company missed estimates with its most recent earnings release. But we are sticking with the name because we believe the worst is behind us and the future is bright for the House of Mouse for two reasons:
1. Streaming content ramp, international expansion
First on the streaming front, which is crucial because the company's Disney+ streaming service can be credited for aiding the shares throughout while the parks business was shut down. And thanks to its recurring revenue nature and increased operating leverage, it serves to support Disney's valuation multiple.
We look forward to a ramp of flagship content and an international expansion as the team is already hard at work on over 340 local original titles and wants to increase the platform's reach to over 160 countries (up from over 60 currently) by FY2023. Also on streaming, ESPN is performing well and we see something of an embedded call option here resulting from management's interest in achieving a greater presence in the online sports betting space.
2. Parks & Experiences rebound
Second, we continue to believe that the Parks & Experiences recovery is being underappreciated by the market. While the parks are currently operating at reduced capacity because of the pandemic, this won't always be the case and with vaccination rates on the rise, we believe the end of these measures is in sight. Moreover, after being cooped up for so long, we think these parks will prove an experiential entertainment haven that consumers will flock to – especially in the U.S. where Florida in particular also has the draw of warmer weather as we head into the colder time of year.
On the cruise front, similar to the parks dynamic, we believe demand here will bounce back quickly as the world normalizes. Indeed, we are already seeing signs of this as management highlighted on the recent earnings call that the inaugural season for the company's new Disney Wish cruise ship (launching in June of 2022) is already "nearly 90% booked." With more ships on the way in 2024 and 2025 (think more capacity), we think that we're currently seeing a trough in the businesses segment as management also noted that Disney's cruise ship business has historically generated double-digit return on investment.
Bottom line: New highs ahead
While we believe each of these dynamics will help create a floor in the stock, we see the shares ultimately being propelled to new all-time highs by management's increased focus on creating a flywheel around the company's world class content. The team clearly understands that the a consumer's physical world is increasingly merging with their digital experiences. Management is looking to leverage this into increased engagement, which will ultimately result in greater monetization opportunities.
As management put it on the earnings call: "Our efforts to date are merely a prologue to a time when we'll be able to connect the physical and digital worlds even more closely, allowing for storytelling without boundaries in our own Disney metaverse. And we look forward to creating unparalleled opportunities for consumers to experience everything Disney has to offer across our products and platforms wherever the consumer may be."
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(Jim Cramer's Charitable Trust is long DIS.)
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