Can Disney Recover? | DIS Stock Analysis |
Disney (DIS) investors have had a rough ride since 2020. The company was on a roll through the late 2010s, but lockdowns in 2020 and a pivot to building direct to consumer streaming services cost Disney a lot of money in lost revenues and capital expenditure. Add to that a decline in viewership and ratings of many of its recent box office releases, and Disney has found itself in a very difficult position. Now with higher interest rates and a potential economic recessions in the US, Europe, and China on the horizon, it's clear that Disney's recovery will likely be much slower than originally forecasted.
Overbudgeting and out of control costs have been a major factor in Disney's recent struggles, and in February 2023 Bob Iger, CEO of Disney, announced a massive restructuring of the company. 100 years after its inception, and Disney is getting a complete makeover. The restructuring includes layoffs totaling 7000 employees.
Disney has also been searching for ways to increase revenues. They struck a deal in August with PENN Entertainment (PENN) to bring Disney's ESPN brand into the world of sports betting. Prices at Disney parks have been increased, and the company has put a renewed focus on increasing its average revenue per user (ARPU) for its streaming services.
Speaking of streaming, Disney has seen explosive growth in the last year for its Disney+ streaming service. It has also managed to slightly grow subscribers in its Hulu brand, which it controls jointly with Comcast (CMCSA). Unfortunately, growth has slowed in recent quarters, with Disney+ showing a net loss of domestic subscribers in the company's most recent earnings report. ESPN + is also losing subscribers, both domestically and internationally.
With all of these issues, it is no wonder why Wall Street has sold out of Disney's stock at such a rapid pace. Analysts expect the company's earnings to grow at approximately 20% per year for the next 5 years, meaning Disney is expected to return to its pre-lockdown earnings in the next 3-4 years.
The current price of DIS is greatly overvalued on a current P/E and forward P/E basis, but if Disney is able to turn around at the rate analysts expect, then today's price is fairly valued and could provide mid-single digit returns over the next several years. If DIS experiences further pains in its restructuring, or any of its major markets were to fall into recession, Disney's stock could see significantly more downside.
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Disclaimer:
This video is for entertainment and educational purposes only. This is not financial advice, and is not a solicitation to buy or sell DIS or any other financial product or derivative. Investing involves significant risk. Please do not invest any capital that you cannot lose.