Will Disney’s moat get stronger as it sprinkles its magic dust on Abu Dhabi?

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Photo by PAN XIAOZHEN on Unsplash

The Walt Disney Company (NYSE:DIS) has seen some upsets in recent years, having to deal with shareholder activism and management changes. Bob Iger, Disney’s Chief Executive Officer, passed the baton to Bob Chapek in February 2020, but came back to his role in November 2022 as Chapek’s CEO stint did not go well.

Disney was hit by a falloff in revenue at its theme parks during the COVID pandemic, as well as a decline in box office revenue during the pandemic which is still not back to pre-pandemic strength. The company has also had to contend with the growing popularity of streaming services, a space in which Disney is still gaining a footing, while demand for cable tv has fallen off, also negatively impacting Disney.

Disney had also gotten into a spat with Florida Governor Ron DeSantis after opposing Florida’s so-called “don’t say gay” act that restricts discussions relating to sexual orientation and gender identity in schools. That led DeSantis to seek to revoke Disney’s self-governing status. Disney and DeSantis came to a settlement relating to the matter last year and said they were ready to move forward and put the disagreement behind them. Disney’s liberal policies continue to attract government scrutiny though, with the Federal Communications Commission recently opening an investigation into Disney and ABC’s “diversity, equity and inclusion” programs.

The so-called “house of mouse” got its start in 1923 after Walt Disney arrived in California from Kansas and started the Disney Brothers Cartoon Studio, which later became the Walt Disney Studio. Disney introduced Mickey Mouse in two silent cartoons that did not take off, but “Steamboat Willie,” the third Mickey Mouse cartoon, which had synchronized sound, was a hit in 1928 and the rest is history.

The Burbank, Calif.-based Disney (an entertainment and media company operating in three main business segments – entertainment, experiences and sports) now owns major studios such as Pixar and Marvel (besides the eponymous Walt Disney Studios); runs multiple theme parks, resort properties and cruises; and offers sports programming and entertainment through its linear television and streaming services such as Disney+ and Hulu.

Disney is also looking to grow further, recently announcing that it is setting up a theme park and resort in Abu Dhabi, in partnership with Miral. Disney is providing its intellectual property and operating expertise to the venture, its seventh theme park, while Miral will take care of the capital investment and construction process and oversee its operations.

According to CEO Iger, “Disneyland Abu Dhabi will be authentically Disney and distinctly Emirati – an oasis of extraordinary Disney entertainment at this crossroads of the world that will bring to life our timeless characters and stories in many new ways and will become a source of joy and inspiration for the people of this vast region to enjoy for generations to come.”

The company had its initial public offering in 1957, priced at $13.88 a share and has had six stock splits since then, giving its initial investors many thousand-fold returns. The stock, which is on both the S&P 100 and the Dow Jones Industrial Average indices, has been underperforming the S&P 500 index in recent years, with a $100 investment in Disney stock at the end of September 2019 down 25% to $75 by September 2024.

In contrast, the S&P 500 has gained more than 100% during this period, while the S&P 500 Media and Entertainment industry group has gained 121% over this period. The stock closed at about $112 on May 15 and for investors the question is whether the Disney magic will continue to reward them, looking past recent setbacks.