The Happiest Place on Earth
January 16th, 2025
I took my family on a research trip to Disneyland this past weekend. We own Disney shares in portfolios, so what better way to see how the company is doing?
Thankfully, the horrific fires were well north of Anaheim but some employees from LA were staying in Disneyland hotels after being evacuated. Many Canadian firefighters were already there or on the way.
Judging by the crowds, Disney is doing just fine. Of course, the company is so much more than parks today, you have to dig deeper to get your arms around it.
We all face change, with some years more chaotic than others, and 2025 may be one of those years. Walt Disney’s journey is a story of adapting to change, for few companies of his era did it as adeptly as he did.
“I went to Hollywood, arriving there with just forty dollars. It was a big day the day I got on that Santa Fe California Limited. I was just free and happy!”
-Walt Disney, 1923
Walt Disney almost didn’t make it right from the start. His cartoons were ‘silents’ just as Hollywood was discovering ‘talkies.’ He worked for months to add voices to a mouse, and his meteoric rise began. He soon realized that short cartoons before the film might pay his bills, but he needed to be the feature film to truly succeed.
In 1937, after three years of painstaking work, a serious animated film called Snow White and the Seven Dwarves premiered. It set a record for the highest-grossing film ever.
Then WWII hit. Disney had to take government propaganda film contracts to get by and after the war ended, the market changed on him again. He took two enormous risks almost at the same time: a move into something called ‘television’ and the creation of a family amusement park. The World of Disney premiered on TV in 1954 and Disneyland opened in 1955.
No one thought Disneyland would work. In a field dominated by carnival barkers where they called customers “marks”, Disney called his customers “guests” and his workers “hosts”. He was fanatical about details, putting intricate gargoyles at the top of his fairy tale castle, even as no one could even see them.
The park was a huge success, smashing attendance records every month and forcing Disney to add more rides and attractions to satisfy the public’s hunger.
Meanwhile, Walt harnessed the power of TV to promote his park, and films (20,000 Leagues Under the Sea, The Shaggy Dog, Mary Poppins) to create new park characters and rides. These positive overlaps rocketed the company to huge growth.
Walt died in 1966. His brother, Roy, carried on with his ideas until his death in 1971, unveiling hit films such as The Love Bug, The Jungle Book, and The Aristocats. Roy opened Disney World in Orlando Florida in 1971 but died later that year.
The shares ran out of gas. The 1970s were not a great period for Disney shareholders. The shares peaked in 1972 and didn’t exceed this level until 1985.
Once again, Disney faced a changing world. A world it had to rapidly adapt to. The world outside of America was opening up and not everyone knew who Mickey Mouse was. And as the Baby Boom generation grew up, they wanted more serious movies.
Once again, Disney moved fast.
Tokyo Disneyland opened in 1983 and was a smash success. Disney established a new movie studio called Touchstone Pictures and released Splash, The Golden Girls, Good Morning Vietnam, and Pretty Woman – all adult hits.
Sales doubled from 1984 to 1989. The stock price tripled.
After the recession of 1990-1992, the company continued growing rapidly.
- Disneyland Paris opened in 1992
- A book division was opened
- Disney was awarded an NHL hockey team they called The Mighty Ducks
- Animation was re-introduced in a big way with hits such as The Little Mermaid, Beauty and the Beast, and The Lion King.
- 450 Disney stores opened to sell merchandise all over the world.
While the shares prospered, there were changes happening under the surface once again that Disney had to adapt to.
The world was going increasingly digital. People were watching movies at home on DVDs and going to theatres less. That, and producing hand-drawn animation on cellulose slides was too time-consuming.
Disney shares reached a high in 2000 and did not exceed this level until 2011. Disney didn’t stand still – far from it. The company bought Pixar studios in 2006 and produced Cars and Toy Story – both digital animated hits.
Work started on Hong Kong Disneyland and Pirates of the Caribbean became a worldwide success. Disney bought Marvel in 2009, which would become the source of its huge superhero franchise a few years later. The first of seven cruise ships was launched in 2011.
Earnings doubled from 2000 through 2011. The stock went nowhere.
And then all the work began to pay off once again.
From 2011 through 2015, the share price tripled in value. This was the decade of megahit after megahit for the Marvel superhero franchise and Disney could do no wrong. Earnings were up just 50% during these years, as the shares rose 300%.
A pause was likely.
Today, Disney shares have been flat since 2016 if we ignore the stay-at-home-and-watch-movies insanity of Covid.
After several years of supersized profits from its Marvel movies, the world of moviegoers experienced what has come to be known as superhero fatigue. Almost every fictional hero that could be put to film has been. The rinse-and-repeat cycle of sequels is now boring.
Disney Studios lived seven years of feast and now faced seven years of famine.
As usual, Disney has not stood still. It bought LucasFilm in 2012, bringing it the entire Star Wars franchise. In 2019, Disney bought 20th Century Fox movie studios, giving it the Avatar movies, X-Men, Alien, The Simpsons, and National Geographic. It also realized cable and network TV were dying and so launched Disney Plus, its streaming service.
Combined with Hulu, a second streaming service it now owns, Disney has more subscribers than Amazon Prime (source: Reddit).
Once Upon a Time…
Disney is a company based on stories, or what the modern world calls content. It has thrived by buying content when they can’t create their own, such that their library of film and stories is unparalleled. They have turned the Muppets, Star Wars, and the Marvel comic franchise into movies, TV shows and attractions at the theme parks.
What lies ahead? The recent purchase of 20th Century Fox brings them the Alien franchise, Planet of the Apes, and Avatar - the most successful movie series in history.
Will these become part of Disneyland tomorrow? After touring the new Star Wars park at Disneyland, an addition that cost $1 billion to build and is amazing in every detail, I can’t say no. And there may be more nuggets within the new purchases that we don’t even know about yet.
Disney shares have been a frustrating ride. However, the past gives us guide as to how Disney is likely to perform in the years ahead.
While the shares have been flat in price since 2016, earnings have almost doubled. This exact pattern happened from 2000 through 2011 when earnings doubled but shares went nowhere.
It was as if the shares had to “grow into their shoes” while earnings caught up.
Today, valuations are now lower than they have been in a decade, yet cash flows are climbing from its TV streaming channel, worldwide parks and cruise ships. This has enabled Disney to resume the dividend they stopped during Covid.
Walt Disney called additions to his parks “plussing,“ which was his word for development and growth every year. If I doubted Disney’s ability to grow, this was put to rest by my visit. Disney knows how to wring profit out of everything you do once there, and you gladly pay it.
I don’t know when Disney will start to climb again. History suggests the ride starts soon.
Two Steps Forward, One Step Back
The market strategist for Fidelity, Jurrien Timmer, describes 2025 as being a “two steps forward, one step back” kind of year. We started January with one step back, as interest rates rose and put a big damper on stocks.
President Trump was elected to be an agent of change, and he is certainly carrying out that role. Especially for Canadians.
The risks for the year are as follows:
- US stocks are historically expensive. That doesn’t mean they go down, but they have to keep growing earnings at a healthy pace to justify their value.
- Short-term interest rates are down, but longer-term rates (where we set most mortgages) are up. That hurts stocks. Inflation data this week was lower than expected, which was a big relief. Maybe interest rates don’t have to go higher.
- Trump is threatening 25% tariffs on all Canadian exports. Will he actually carry through on this? Canada’s leaders are very nervous that he will. Canadian investors are equally nervous.
As always, there will be opportunities:
- Canada is on sale. Our dollar at US $0.69 is very cheap for Americans, meaning our exports are also cheap.
- If there is bad news from the Trump administration, our dollar could go lower. But probably not much lower. If it does, we will want to buy Canadian resource companies. Anything that digs or pumps in Canadian dollars but sell in US dollars.
- This threat may unify Canadian premiers and federal leaders. We squabble and fight over our individual turf far too much. A painful event like this could be a blessing in disguise for Canadian unity.
- In the end, U.S. Republicans may decide it is not in their best interest to annex Canada. As John Last and Rich Lowry said in The New Republic: “Canada would in all likelihood be adding 40 million Democrats to their number. Canada would be a blue-state behemoth, matching California in population … and, presumably, in reliably Democratic politics.”
