Source: PaxForex Premium Analytics Portal, Fundamental Insight
Most families in the U.S. can be described as Disney families, but lately many have been questioning their commitment to the House of Mickey. While the company has been drawing attention lately with its recent Disney+ Day event, investors should pay attention to the negative talk among the company's biggest fans. That's why good news at the moment could turn out to be bad news in the future.
Disney is a public company, which means it is obligated to maximize profits for its shareholders. Naturally, this makes perfect sense. However, the best way to accomplish this usually involves taking care of other stakeholders, such as employees and customers. Disney is currently cracking down hard on its customers by raising prices.
The latest increases have affected the company's streaming service, where Disney is raising prices across the board. The company is introducing an ad-supported paid version of Disney for $7.99 a month and increasing the cost of the ad-free service by nearly 38%. Hulu's ad-supported service will increase by 14% and its ad-free service will jump by 18%. ESPN's streaming service will go up 43%.
Disney has also moved on to pricing at its parks. Base prices at Disney World parks in Florida can be about the same, but prices can go up sharply on days when there is historically high traffic. That said, the company also raises base prices at some parks and increases fees for food and souvenirs.
To be fair, all of these price increases are probably great news for profitability, especially since the company really doesn't offer much in the way of added value. Still, after spending years enjoying all that Disney has to offer, it's likely investors should be concerned.
The big question is simple: Why? In a recent media interview, Disney CEO Bob Chapek explained, "We read demand." And that "if consumer demand grows, we will act accordingly." Translated, this means that the company plans to raise prices because it thinks it can get away with it. This is the most non-Disney thing you can hear.
Disney's first park in California, for example, opened with the words of company founder Walt Disney: "To everyone who comes to this happy place: welcome. Disneyland is your land." The price of admission was set so that young families could bring their children, and this was the baby boom generation. It was supposed to be affordable for everyone.
However, as prices get higher just because some are willing and able to pay, even more, Disney is actually closing its parks to those who don't have the financial means to pay hundreds or even thousands of dollars for a vacation. And that's just for the park ticket because even at the base price, a family of four would have to pay more than $400 for a single day's visit. Added to that are hotels, food, and Disney merchandise.
Disney fans have noticed this and are openly expressing their displeasure in Disney-themed blogs, videos, and messaging apps. One cannot disagree with them. In fact, it's quite common to see park visitors wearing T-shirts "joking" about how expensive it is to visit the park. One of the biggest controversies of late has been the Disney Genie app, which charges each person for an attraction scheduling service that used to be free (FastPass), but now requires an additional fee to skip the lines at the best rides.
Upsetting and possibly alienating your most loyal fans is usually a bad idea.
It's worth noting that Disney's audience extends far beyond its most loyal fans, so the company can probably raise prices without any impact-at least for a while. However, there will come a point when the company begins to push too hard for profits, and the anger growing among followers could potentially be a canary in the coal mine on that front. Few will complain about reasonable price increases, but right now it seems as if Disney is making a cash infusion simply because it can get away with it. For a company that focuses on families and family values, this seems like a misguided short-term approach that could lead to negative long-term results. Even if you are more positively inclined, this is an issue you should keep in mind as you study the company's quarterly updates over the next few years.
As long as price is above 111.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 114.76
- Take Profit 1: 118.00
- Take Profit 2: 125.00
Alternative scenario:
If the level of 111.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 111.00
- Take Profit 1: 108.00
- Take Profit 2: 104.00
