Disney stock was trading higher today after the company announced that it would reopen its Shanghai theme park on June 30. The park was shut since March 21 due to the surge in coronavirus cases in China.

While the rest of the world has mostly learned to live with the pandemic, China is still continuing with its zero-COVID policy. Nonetheless, the reopening of the Chinese economy is leading to upwards price action in leisure and travel stocks.

Disney’s Shanghai Park would start selling tickets from tomorrow. The park, which is a joint venture between Disney and Chinese state-owned Shendi Group would cap capacity at undisclosed levels. Also, guests would have to show a negative COVID-19 test taken 72 hours before the entry to the park.

The Parks segment is a key driver for Disney. In the fiscal second quarter of 2022, the segment generated revenues of $6.6 billion which were more than double the $3.1 billion that it posted in the corresponding quarter of the last year. The steep rise came from a lower base as several of the company’s Parks were closed in 2021 due to the lockdowns.

In the fiscal second quarter of 2022, the Parks segment accounted for a third of its total revenues and almost half of the operating profits. The Parks segment has been the cash cow for Disney while it is investing heavily in its streaming business. While the streaming business is growing fast, it is currently posting losses.

Disney’s Streaming is Growing While Netflix is losing subscribers

Notably, Disney’s streaming business is growing at a time when Netflix’s growth has sagged. The company lost half a million subscribers in the first quarter and expects to lose another 2.5 million in the current quarter. During the earnings call, Netflix admitted that it is peaking in several markets. The company is rumored to launch the second season of Squid Games to revive its growth.

Commenting on the fiscal second quarter 2022 earnings, Disney’s CEO Bob Chapek said, “Our strong results in the second quarter, including fantastic performance at our domestic parks and continued growth of our streaming services—with 7.9 million Disney+ subscribers added in the quarter and total subscriptions across all our DTC offerings exceeding 205 million—once again proved that we are in a league of our own.”

Disney expects to grow its streaming business rapidly over the next two years. The business is expected to turn profitable towards the middle of this decade.

Disney Stock Has Fallen but Analysts See It as a Buy

With a YTD loss of 37%, Disney stock is underperforming the markets by a wide margin. The company also stirred a political controversy after it opposed Florida’s “Don’t Say Gay” bill. Meanwhile, despite the challenges, Wall Street analysts have a consensus buy rating on Disney stock.

Earlier this month, Bank of America reiterated Disney stock as a buy while lowering the target price from $140 to $120. Jim Cramer is also bullish on the stock. He has however advised against buying former market darlings and believes they could fall further.

Wells Fargo also reiterated Disney stock as a buy earlier in June and said that the recent sell-off is noise. The brokerage however said that growth in the streaming business would be crucial for a recovery in the stock.

Deutsche Bank is also bullish on Disney’s long-term forecast even as it lowered the target price from $191 to $130 while maintaining its buy rating.

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