We recently compiled a list of the 10 Best Leisure and Recreation Services Stocks to Buy Now. In this article, we are going to take a look at where The Walt Disney Company (NYSE:DIS) stands against the other best leisure and recreation services stocks to buy now.
Leisure travel is booming and setting new records. According to AAA, 119 million Americans will travel 50 miles or more between December 21 and January 1, breaking the 2019 record by 64,000. Holiday travel has reached all-time highs. Over 3 million passengers were screened by TSA on December 1st, and 18.3 million passengers were screened during Thanksgiving week, both of which set new records. Despite a 4% yearly rise in ticket prices, demand has been fueled by a 9% drop in airfare this season. Spending has been driven by continued stimulus savings, low unemployment, and wage hikes. Despite continuing consumer concerns about economic instability, Lee McPheters, a research professor and director of the JPMorgan Chase Economic Outlook Center in Arizona State University’s W. P. Carey School of Business, points out that the industry’s resurgence is being driven by pent-up demand and strategic pricing, with travel being prioritized for experiences.
The leisure market has grown remarkably in the last few years. The global leisure market was valued at $1.46 trillion in 2023, and Market Research Intellect projects that it will rise at a compound annual growth rate of 21.8% between 2024 and 2031, reaching $8.6 trillion.
According to Deloitte’s report, in Q3 2024, the leisure industry continued to rebound, as total net expenditure increased from -10.3% in Q2 to -8.5%, the highest level since Q1 2022. Short holidays (+4.7 percentage points) and eating out (+5.5 percentage points) topped the increase in spending across nine of the eleven leisure categories. Casual dining sites rose by 1.7% year on year, with three new locations opening each week.
While spending on long vacations dropped because of rising expenses and economic uncertainties, short vacations gained popularity as consumers prioritized affordability. Live sports, concerts, and festivals drove a 4.1 percentage point increase in net spending on culture and entertainment. Spending at pubs and bars and leisure activities at home both climbed by 1.7 and 1 percentage point, respectively.
Nonetheless, it is anticipated, as per the Deloitte Consumer Tracker, that spending will decrease in nine out of eleven categories in Q4 2024, with the biggest declines occurring in eating out (-5.9 points) and longer holidays (-8.1 points). The hospitality industry will face challenges from growing expenses and cautious consumers, necessitating flexibility and value-driven tactics.
According to Lodging Analytics Research & Consulting (LARC), leisure demand growth will resume in 2025, providing a possible recovery for the industry as it adjusts to changing market conditions. As per the report, a 2.7% increase in ADR and flat occupancy would propel a 2.7% RevPAR growth in 2025. This comes after a 1.4% RevPAR growth in 2024, which was bolstered by a 1.6% increase in ADR and a 0.3% decline in occupancy. Key reasons cited by LARC include “growing inbound foreign arrivals” and the moderating strength of the US dollar. Corporate transitory demand is projected to remain strong in the first half of 2025, while convention activity, which increased by 4% in 2024, is expected to grow by 5% in 2025. Moody’s predicts a 2.2% GDP growth rate in 2025 along with further rate cuts from the Fed, providing a “short-term tailwind.”
Meanwhile, according to KPMG’s Global Leisure Perspectives 2024 report, the future of the hotel industry is being shaped by seven key trends. Automation and artificial intelligence (AI) are simplifying processes and improving visitor experiences with dynamic pricing and tailored advertising. A growing amount of personalization is data-driven, adjusting visitor experiences according to behavioral findings. Alternative lodging choices, such as rentals and glamping, are becoming increasingly popular, encouraging hotels to provide unique, authentic experiences. New revenue streams are being investigated, such as creating flexible work arrangements in underutilized locations. Unbundling services enable visitors to customize their stay, and creative collaborations are increasing market share and reach. Embracing these developments will be critical for remaining competitive in the changing landscape.
Commenting on technological developments in the leisure sector, Paul Fultz, Partner and US Segment Leader, Restaurants at KPMG in the US, remarked:
“As labor, supplychain and recession pressures abate, it is encouraging to see restaurant operators actively transform their operational capabilities and experiential strategies with digital technologies like automation and AI. It’s that kind of innovative thinking that will impact customer loyalty, near-term value and long-term growth”.
A packed theater of moviegoers watching a blockbuster film produced by the entertainment company.
Our Methodology
We sifted through holdings of leisure ETFs and online rankings to form an initial list of 20 leisure stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 76
The Walt Disney Company (NYSE:DIS) is most recognized for its vacation spots, which include its own cruise line, amusement parks, and hotels located on three continents. The business also operates streaming, merchandising, television, and movies.
Diversification helps the company deal with challenging periods, such as the COVID-19 epidemic. Disney was still able to make enormous amounts of revenue even after its theme parks closed. It has had great success with its streaming service portfolio.
Disney+ is the crown jewel, with over 150 million paid subscribers. The company also owns ESPN+ and Hulu. Over 220 million individuals use its streaming services globally.
Throughout the year, the company has suffered with the headwinds affecting the larger media business. These challenges include declining legacy media asset prices and difficulties in the online streaming business as a result of Netflix’s dominant position. In Q1 of 2024, The Walt Disney Company (NYSE:DIS) had a 22% decline in operating income, which was caused by an 8% decline in revenue. Nonetheless, the company seems to be effectively improving its situation. For the first time, its streaming division turned a profit in Q3 of 2024 ($47 million).
The Walt Disney Company’s Q4 2024 revenues increased by 6% to $22.6 billion from $21.2 billion in the same quarter the previous year. Revenues for the entire year increased by 3% to $91.4 billion from $88.9 billion the year before. Disney’s operating income from its Entertainment division increased by 23% in the fourth quarter of 2024, while its DTC streaming operations witnessed a 14% gain in ad revenue. Additionally, the Experiences segment recorded record revenue for the whole year, with a 1% increase in Q4 2024 sales. In addition, ESPN’s domestic ad revenue jumped by 7% YoY in Q4 of 2024.
Rosenblatt maintained its Buy recommendation on The Walt Disney Company (NYSE:DIS) shares and increased the price objective from $122 to $135. In a research note, the analyst informs investors that the company’s “build up for growth,” as described by Disney’s CFO during a media conference last week, “looks doable — especially given recent momentum.” According to the company, this justifies a more positive assessment of the shares’ value. In a research note, the analyst informs investors that a re-rating for Disney can be bolstered by growing confidence in the company’s growth trajectory and portfolio durability, as well as a decreased concern about exposure to secular pressures on linear TV and competition in streaming.
Ken Griffin’s Citadel Investment Group was the largest stakeholder in the firm from among the funds in Insider Monkey’s database. It owns 10.08 million shares worth $970.35 million as of Q3.
Overall, DIS ranks 2nd on our list of the best leisure and recreation services stocks to buy now. While we acknowledge the potential for DIS to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DIS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.