The House of Mouse will undergo many changes between now and 2026.
It is getting closer to the end of Bob Iger’s tenure. Previously thought to have retired to write books and pursue political ambitions, the former Walt Disney CEO is back at the helm of the media giant.
In the two years, he has set for himself before stepping down again, there is a lot to fix at the company. It’s easy to wonder if he will be able to accomplish everything.
Three years from now, Iger will likely still be the company’s CEO. The stock of Disney will more than double in three years, a bolder market forecast than I made last time. We can see how I predict that the House of Mouse will be hitting new highs by 2026 (if not sooner now that the shares are down to roughly half of where they were two years ago).
The Magical Kingdom
In our current market environment, many market watchers believe the obvious to be the case. There will be a rough patch ahead for the global economy, and Disney is most likely to be affected since it is a consumer-facing company.
In order to grow the company’s TV and streaming businesses, advertisers will cut back on their marketing budgets. Fiscal 2022 will pose a challenge to the iconic theme parks segment, which set new records in fiscal 2022. Despite the decline in box office returns that has existed for the past two decades, it is likely to continue.
As we head toward the horizon, the road ahead is filled with potholes. First, let’s examine Disney’s distribution of media and entertainment. Premium streaming revenue soared 20% in fiscal 2022, lifting flat results at its legacy linear networks despite an 8% increase in revenue.
With the addition of Hulu and ESPN+, Disney+ now makes up nearly a quarter of the company’s revenue. There’s a sticking point in this story since direct-to-consumer streaming had a $4 billion operating deficit last year.
There is a reason why Iger is here and Chapek is not, and that is the red ink at Disney+. By the end of fiscal 2024, Disney+ was supposed to become profitable when it launched three years ago. Considering the widening losses, it seemed unlikely.
Iger’s primary goal is to get the streaming balance right, so you must believe he will succeed. The goal might not be reached in two years, but it may be reached in three years. Added ads to Disney’s tier should help it to add to Disney’s bottom line rather than subtract from it by early 2026 thanks to recent price hikes and the addition of an ad-supported tier.
Advertising will naturally return to the market once consumers are spending again, and advertisers will be attracted to Disney because of its unbeatable content catalog and franchises. The theatrical distribution will continue to be a challenge for Disney and its peers despite Avatar: The Way of Water becoming the first film to sell over $2 billion in tickets worldwide since 2019.
Considering its strong streaming platforms, the company should be able to offset any weaknesses at the local multiplex.
Where’s The Magic At?
Over the past year, Disney’s theme parks business has done well as revenge travel has gained popularity. Following the scrapping of vacation plans in 2020, and particularly in 2021, people paid a premium for a return to the leading theme park operator.
As a result of mounting economic pressures, we can expect turnstile clicks to slow this year, and possibly next year. Disney World attractions always bounce back, however.
Disney’s largest competitor in Florida will open Epic Universe at Universal Orlando in 2025, making 2025 an exciting year for theme parks.
There is a need for Disney to respond if it does not want to lose market share at its largest resort. There hasn’t been much talk about Disney’s theme parks business with Iger. Therefore, if he wants to cement his legacy, he’ll need to do more than turn Disney+ around to stay away from it.
It’s too late for Disney to have a new park in Florida to compete against Epic Universe when it opens. It is likely, however, that plans will be in place by then to maintain a close relationship between patrons and shareholders.
As far as media stocks are concerned, Disney remains a class act. Compared with fiscal 2019, the following revenue is already higher than it was before the pandemic. The company expects adjusted earnings to surpass $7.08 a share in fiscal 2026, its all-time high. If Iger is mostly successful this time, doubling the stock price to $200 within three years seems reasonable.