Was Disney+ a Mistake?

Key Concepts

• Disney Plus: Disney’s streaming service, launched as a response to changing media consumption habits.
• Intellectual Property (IP): Creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names, and images used in commerce.
• Parks, Experiences and Products (Disney Parks): Disney’s theme park division, consistently a high-profit center.
• Earnings Per Share (EPS): A company’s profit allocated to each outstanding share of common stock.
• Underperformance: A stock’s return being lower than a benchmark index (in this case, the S&P 500).
• Scalability: The ability of a business to handle a growing workload, or its potential for rapid growth.

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Disney’s Performance & The Disney Plus Dilemma

The discussion centers around the financial performance of Disney (DIS) stock and a critical assessment of its recent strategies, particularly the launch of Disney Plus. A key argument presented is that Disney stock has significantly underperformed the broader market (S&P 500) over various timeframes. Specifically, over the last 30 years, Disney has risen 675% while the S&P 500 has increased by 1,800%. Over a 10-year period, Disney’s growth is 298% compared to the S&P 500’s 170%. This underperformance is attributed, in part, to the investment in and operation of Disney Plus.

The speakers hypothesize that Disney’s stock would likely be higher today if the company had not launched Disney Plus and instead licensed its intellectual property (IP) to existing streaming services like Netflix, HBO, and Peacock. This suggests a belief that Disney’s core competency lies in creating content, not in directly competing in the streaming market. The idea is that licensing would have generated revenue without the substantial capital expenditure and operational challenges associated with running a streaming platform.

The Profitability of Disney Parks vs. Streaming

A significant point of emphasis is the exceptional profitability of Disney’s theme park division (Parks, Experiences and Products). It’s estimated that Disney parks collectively attract approximately one million visitors per day, generating substantial revenue. Despite this consistent profitability, the overall company’s earnings per share (EPS) have remained stagnant for the past decade. This disconnect between park profitability and overall earnings growth is a central concern.

The speakers note that Disney Parks, unlike tech companies, don’t easily “scale.” This means expanding the parks’ capacity and revenue is limited by physical constraints and investment costs. The initial hope was that Disney Plus would provide the scalability that the parks lacked, but this has not materialized. The comment is made that “tech companies are better than phys,” referring to the scalability advantages of technology-based businesses.

Long-Term Underperformance & Market Valuation

Detailed analysis of Disney’s stock performance reveals consistent underperformance across multiple time horizons: 1, 3, 5, 10, 15, 20, 25, and 30 years. Over the 30-year timeframe, the S&P 500 has averaged a 10% annual return, while Disney has averaged 7%. This difference, while seemingly small, compounds significantly over time.

The discussion highlights the market’s apparent undervaluation of Disney’s existing profitable business. Despite being an “iconic global brand” with strong resonance among consumers, the stock’s performance doesn’t reflect its inherent value. A humorous anecdote from the comments section illustrates this point: a commenter jokingly suggested paying Disney to stop discussing the stock, followed by another commenter noting Disney would likely use that money to reinvest in itself.

Peter Lynch & "Invest What You Know"

The conversation briefly references Peter Lynch’s investment philosophy of “invest what you know.” While acknowledging the principle, the speakers imply that simply recognizing a successful business (like Disney Parks) isn’t enough to guarantee a profitable investment, especially when broader company performance is lagging.

Synthesis

The core takeaway is that despite the enduring popularity and profitability of its theme park division, Disney’s overall financial performance has been disappointing, particularly when compared to the broader market. The launch of Disney Plus is presented as a potential contributing factor to this underperformance, with the argument that licensing IP to existing streaming services might have been a more financially advantageous strategy. The discussion underscores the importance of analyzing long-term performance trends and considering factors beyond brand recognition when evaluating investment opportunities.