HomeMost PopularWhy Investing in Disney Might Not Be a Wise Move

Why Investing in Disney Might Not Be a Wise Move

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Introduction

The last time I analyzed The Walt Disney Company (NYSE:DIS) was in July 2023, when I discussed the need for a catalyst to reverse the stockโ€™s long-term downtrend.

Since the start of this year, DIS shares have significantly underperformed the broader market, but have remained stagnant over the past month during the S&P 500 Index correction.

Has Disney finally found the catalyst it needs for a turnaround? Letโ€™s explore.

The Recent Financial Performance

In its fiscal 3Q23 results, Disney exceeded EPS estimates but fell short of revenue expectations by $180 million. The company implemented a corporate restructuring, including layoffs and expense cuts, as well as reorganized its management structure.

The fiscal 3Q revenue reached $22.3 billion, with a 4% increase from the previous year driven by the Parks, Experiences, and Products division. The Media and Entertainment Distribution division experienced a 1% revenue decline.

Disneyโ€™s direct-to-consumer business reported an operating loss of $512 million, narrowing from previous losses, thanks to restructuring efforts. However, Disney+ lost 12 million net subscribers in fiscal 3Q, resulting in a decline in total subscribers across all streaming services.

To improve profitability, Disney announced price increases for its direct-to-consumer services and plans for a password-sharing crackdown in 2024.

Disney also faced challenges due to strikes by the Writers Guild of America and SAG-AFTRA, which affected content production and promotion.

Overall, these factors indicate that Disney still has unresolved issues, making it difficult to consider it as a promising investment.

Valuation & Expectations

Comparing Disneyโ€™s valuation with major competitors such as Comcast Corporation (CMCSA), Netflix Inc. (NFLX), AT&T Inc. (T), Sony Group Corporation (OTCPK:SNEJF), and Amazon.com Inc. (AMZN), it appears that Disney is relatively undervalued. However, its EPS forecast is declining compared to Netflix, which is not favorable for Disneyโ€™s future growth.

In terms of intrinsic value, assuming a 10-year growth rate based on current implied growth, Disneyโ€™s shares appear to be slightly overvalued.

The Verdict

Based on the analysis, it is apparent that there have been no significant changes to favor a rapid recovery of Disneyโ€™s stock. Disney still requires a catalyst to regain a promising status, making it advisable to avoid investing in Disney until such a catalyst emerges.

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