In 2018, revenues stood at $59.4 billion, while operating profits came in at $15.7 billion. I'm an angel investor in over 20 companies including Indiegogo, Lumni, Page Vault, MagicCube.co, SPH Analytics, Abroad.io, ClearCare Online (exited to Battery Ventures) and international art show, EXPO Chicago. The revenue generated from all that merchandise is tallied up and recorded under Disney’s Consumer Products business.The Consumer Products business has struggled over the past several years. At the core of this streaming pivot is Disney’s very own Disney-branded streaming service, Disney+.As discussed earlier, consumers everywhere are rapidly shifting from linear TV content consumption to internet TV content consumption because the internet TV channel offers lower prices and higher convenience. This moderation will continue to occur as higher advertising rates offset slight subscriber declines and as the cable world pivots into the over-the-top channel.We all know that cord cutting is the trend these days. Assuming the diluted share count stays around 1.5 billion, that equates to a potential 2025 earnings-per-share target of $13.As mentioned earlier, growth stocks normally trade at 20-times forward earnings. Indeed, during the first half of the 2020s, the fundamentals here support Disney stock nearly doubling from current levels.Without further ado, let’s breakdown the long term bull thesis on Disney stock segment by segment and take a look at why DIS stock is worth buying for a huge upside into 2025.One of the more important components of the bull thesis is the idea that secular declines in the Media Networks business have already started moderating and will continue moderate for the foreseeable future. Photographer: Patrick T. Fallon/BloombergAt some point, we felt it would be necessary for us to not only be disrupted, but to disrupt our business ourselves.”Many executive talk about disrupting their own businesses.
This optics shift will boost investor sentiment and essentially cause a re-rating in the stock back to growth territory.Growth stocks normally trade around 20-times forward earnings. Over the past decade, that dominance has amounted to mid single-digit revenue growth on top of margin expansion. There’s room for more than one winner in this war. Thus, in the long run, Disney stock is on a winning trajectory towards a $260 price tag.Such a big long term price target implies that there is further upside left in the near term, too. Could this be his next 1,000% play? Margins should improve, too, as the company pivots into higher-margin and higher-value interactive media products.
Disneyland park in Anaheim, California on May 29, 2019. That leaves about $19.5 billion in net profits. All the blockbuster movies that seemingly every year dominate the box office. That’s simply too much growth in not enough time. At the unveiling of Star Wars: Galaxy's Edge at Walt Disney Co.'s Disneyland park in Anaheim, California. All rights reserved. Photographer: Qilai Shen/Bloomberg
Over the next several years, as streaming service expansion pushes Disney’s profit growth rates higher, investors will increasingly see Disney as an innovative streaming company, not an antiquated media company. That multiple expansion on top of mid to high single profit growth should drive healthy gains in Disney stock.As mentioned earlier, Disney’s operating profits could stand around $25 billion by 2025, and that volume of operating profit easily warrants a $260 price target for DIS stock by 2024.The math here is pretty easy to follow. Copyright © 2020 InvestorPlace Media, LLC.
High single-digit annualized revenue growth plus 10 points of cumulative margin expansion has driven mid-teens annualized operating profit growth since 2010.This healthy revenue growth on top of steady margin expansion dynamic will persist. In anticipation of all this growth, Disney stock has risen nearly 30% year-to-date to all-time highs.In this article, we will take an in-depth look at why recent strength in Disney stock, will extend into the first half of the 2020s. Netflix runs at roughly 10% operating margins. (Full disclosure: I am not an investment advisor, and I own a position in Disney shares as an individual investor. Over the next several years, Disney’s big streaming pivot will unlock tremendous value, and drive revenue and profits materially higher.As revenues and profits move materially higher, so will DIS stock.
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