Disney’s shares hit multi-year low. Has it lost its magic?

Learn and Invest with Webull is a regular column by Webull in collaboration with Beansprout aimed at helping investors better understand developments in the financial markets.

What happened?

You might be familiar with Disney and its iconic characters such as Mickey Mouse and Duke Caboom in Toy Story. 

Whether it’s the cartoons that many of us enjoy watching on Disney+, or the Disneyland theme parks we flock to during vacations, Disney continues to bring many to the “Happiest Place on Earth”. 

However, Disney’s share price paints a different story. Disney’s share price was at $80 as at 27 September 2023, reaching levels close to its multi-year low. 

As at 27 September 2023, the share price of Disney has fallen by 19% in the past year. This is in stark contrast to the share price of Netflix, which has gained close to 70% over the same time period. 

Let us dive deeper to understand more about what is driving the weakness in Disney’s share price. 

What you need to know about Disney’s share price

Disney is not just a pure amusement park operator. The company has utilised its intellectual property (IP) to operate entertainment businesses across 2 major divisions.

Its Parks, Experiences and Products Division operates 6 amusement parks globally, hotels and resorts, as well as a cruise line with currently 4 fleets.

Disney’s Media and Entertainment Division owns media studios and produces TV shows and movies such as Star Wars and Marvel Heroes franchise. In addition, Disney also has a content streaming business, Disney+.

While the lock down resulted in the closure of the amusement parks, Disney was an unusual winner during COVID as its Disney+ saw a phenomenal growth of 104.3 million paid subscribers in a span of 2 years from its launch in 2020. It appeared that Disney+ will be a huge competitor to Netflix.

#1 Paid subscriber growth has stalled 

Since then, the world has re-opened and people started to spend less time at home and hence the streaming platforms including Disney+ started to see subscription pressure.

Domestic paid subscribers in US declined by 300k quarter-on-quarter to 46 million in the latest quarter, while international subscribers growth has also slowed to only 1.1 million net new subscribers.

#2 - Disney+ loss making as it continues to spend on developing content 

Disney however continues to spend on developing its content to grow Disney+ and was losing as much as $1.5 billion per quarter. 

In an attempt to turnaround the Disney+ situation, Disney has embarked on several initiatives to make Disney+ profitable. These include cost cutting measures and introducing an ad-supported subscription plan to increase the revenue stream.

There appears to be some early signs of success, as losses in the Direct to Consumer segment (DTC) consisting mainly Disney+ has narrowed to $500 million in the latest quarter.

#3 – More to be spent to develop theme parks

Disney has recently communicated during an investor summit that they will commit $60 billion over the next 10 years to invest in expanding and enhancing domestic and international parks and cruise line capacity. 

This spending is double of what Disney has spent in the last 10 years. This led to investor worries that the increase in spending plans will create an additional cash burden on Disney.

As a seasoned amusement park operator, Disney has historically shown that its investments have value to shareholders. 

What would Beansprout do?

The challenges faced by Disney has led to a 58% decline in its market value in less than 3 years. However, the good news is that Disney’s ex-CEO Bob Iger has returned to Disney with an objective of turning around the company. 

Disney has committed to a cost cutting initiative of $5.5 billion which will involve laying off employees as well as rationalizing content cost. 

We would be looking out for any signs of stabilisation in the paid subscriber numbers within the Disney+ segment. 

Also, we would be monitoring Disney’s cash position remains healthy as it tries to fix the problems in Disney+ and invests in theme parks.

According to data from Webull, most analysts have a Buy recommendation on Disney, with an average share price target of $106 as of 27 September 2023. This would be about 30% above its share price of $80 as of 27 September 2023.   

As such, it might be worth adding Disney to your watchlist and await signs of a turnaround.

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