Key points
- Walt Disney Co.’s shares have lagged the S&P 500 in recent years.
- Disney is transitioning to relying more on a direct-to-consumer streaming model.
- The company is focused on cost-cutting and profitability and exploring potential restructuring and divestment options.
Disney’s stock is underperforming again in 2023, and investors may wonder if there’s any hope that Disney can right the ship in 2024 and beyond.
Wall Street analysts remain confident Disney has better days ahead. Still, the company’s long-term trajectory will likely hinge on its ability to continue growing and monetizing its streaming platforms, reorganizing its legacy business and divesting underperforming assets.
History of the Walt Disney Co.
Walt Disney and his brother Roy founded Disney Brothers Cartoon Studio in 1923, and the company produced its first Mickey Mouse cartoon and major hit “Steamboat Willie” in 1928. In 1937, Disney released “Snow White and the Seven Dwarfs,” which remains one of the highest-grossing films ever after adjusting for inflation.
Disney opened its famous Disneyland theme park in Anaheim, California, in 1955. After the company’s early success, Disney went public via an initial public offering in 1957, selling initial public offering shares at $13.88 each.
Disney continued to crank out dozens of groundbreaking and acclaimed films in the second half of the 20th century, and the company went on a buying spree to expand its media empire in the 1990s and 2000s. Disney has several media subsidiaries today, including ABC, ESPN, Pixar, Marvel Studios and Lucasfilm.
Disney (DIS) at a glance
Walt Disney Co. is a diversified global media and entertainment conglomerate that operates several types of businesses, including theme parks, television production, filmed entertainment and direct-to-consumer streaming video.
The Disney Media and Entertainment Distribution segment accounts for about two-thirds of Disney’s revenue. It includes the company’s linear TV networks and direct-to-consumer streaming services Disney+, ESPN+, Hotstar and Hulu.
Disney’s linear networks include the ABC broadcast network, several TV stations, and cable networks such as ESPN, Disney Channel, Freeform and National Geographic. Disney’s Parks, Experiences and Products segment includes Disneyland, Disney World and other domestic and international theme parks and its Disney Cruise Line businesses.
While Disney is one of the most iconic and successful media companies ever, the company has struggled through hard times in recent years in pivoting to adapt to an evolving media landscape.
In the 2010s, the rise of Netflix (NFLX) and other streaming video platforms pressured Disney’s transition to a direct-to-consumer streaming model. Disney launched its Disney+ streaming service in November 2019. The compay has grown its Disney+ paid subscriber count to 150.2 million as of the fiscal fourth quarter, representing a 7% increase from the previous quarter. Disney also reported that it has 26 million paid ESPN+ subscribers and 48.5 million paid Hulu subscribers.
Disney CEO Bob Iger announced in November 2022 that the company’s streaming focus would shift from subscriber growth to profitability. Unfortunately, the company has not yet delivered on that streaming profitability target, reporting a $500 million operating loss in its direct-to-consumer business in its third quarter.
In the company’s most recent quarter, Disney reported adjusted earnings per share of $0.82 on revenue of $21.24 billion, a 7% increase from the prior year. Disney expects to also deliver several billion in annualized savings as part of its so-called building phase.
In the company’s most recent earnings statement, Iger said they are moving on to building the business. “(This is) reinforced by the important restructuring and cost efficiency work we’ve done this year, and we’re on track to achieve roughly $7.5 billion in cost reductions.”
Disney stock price
Disney went public at an IPO price of $13.88 in 1957, but it has split its stock seven times in its history. On a split-adjusted basis, Disney’s stock price climbed as high as $43.88 in 2000 during the dot-com bubble, but it dropped to under $15 in 2002 when the bubble burst. After making it back above $30 in 2007, Disney shares again fell to under $16 during the Great Recession in 2009. Disney was again at new highs by 2012 and continued that momentum through mid-2015.
After roughly four years of trading between around $90 and $120, Disney shares broke out to the upside in 2019 ahead of the launch of its highly anticipated Disney+ streaming service. Disney shares hit their all-time intraday high of $203.02 on March 8, 2021, but now trade at around $90 as of Nov. 9.
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Disney stock splits
Disney’s most recent stock split was a 3-for-1 split in July 1998. If you crunch the numbers on all seven of the company’s stock splits, a single share of Disney’s IPO stock would represent 768 shares of today’s Disney stock.
How has Disney’s stock price performed?
Disney’s stock has been an exceptional investment over an extremely long-term time horizon, but the stock has generated mixed results in recent decades. In the past 30 years, Disney has generated a total return of roughly 714% compared to the $1,590% total return of the S&P 500 during that same stretch.
Since the turn of the century, Disney shares have generated just a 268% return compared to a 367% total return for the S&P 500. If you look at just the past decade, Disney’s underperformance has continued even as it has transitioned its business to a streaming video model. In the past 10 years, Disney investors have logged a more than 38% gain compared to a roughly 203% total return for the S&P 500.
Opportunities and obstacles facing Disney (DIS)
Disney has plenty of levers to pull to help improve its performance in the coming years, but it also has several significant hurdles to overcome.
The streaming platform still has significant long-term subscriber growth potential, particularly in international markets. Disney’s deep content library of original series and movies and its large collection of cable TV, movie and theme park assets create opportunities to divest underperforming businesses and restructure the company to improve profitability and pay down debt.
Unfortunately, Disney is facing the likely possibility that its media network division’s affiliate fees will decline over time as pay TV subscriber counts drop. Disney’s streaming business still needs to be more profitable, and intense competition in the streaming space may continue to pressure margins for the foreseeable future. Finally, producing hit programs and movies is expensive and unpredictable, so Disney faces rising production costs and unpredictable audience reception risks.
Strengths
- Opportunity to further monetize its large streaming subscriber base.
- Potential to further grow its streaming subscriber count, particularly in international markets.
- A deep, valuable content library and collection of top-tier TV, movie and theme park assets create restructuring, divestment and cost-cutting opportunities.
Weaknesses
- Media network affiliate fees may be pressured as legacy pay TV subscriber numbers drop.
- The streaming video market is extremely crowded and competitive, limiting margin expansion.
- TV and movie production costs are rising, and producing hit content can be unpredictable.
What can we expect from Disney (DIS) in 2024?
Analysts are generally optimistic about Disney’s business and stock price in 2024. The analysts covering Disney are projecting full-year adjusted EPS $4.49 in 2024, up from an EPS of $3.47 in 2023. Disney analysts are calling for $88.27 billion in revenue for Disney in 2024, up 5.2% year over year.
In September 2023, media entrepreneur Byron Allen made a $10 billion offer to buy the ABC television network, FX and National Geographic cable channels and local TV stations from Disney.
Disney said it hasn’t decided on a potential ABC sale. Still, Third Bridge Group analyst Jamie Lumley said the company could use the profits from a linear TV asset sale to help fund its acquisition of Comcast’s one-third stake in Hulu, which is expected to cost around $8.61 billion.
“Disney is still trying to figure out how best to balance its traditional TV business with its streaming buildout. With streaming still unprofitable and linear revenue continuing to erode, the pressure is building to deliver results that drive net growth for the business as a whole,” Lumley said.
Disney may also have a near-term catalyst following the launch of its ESPN Bet online sportsbook in November 2023. ESPN Bet’s initial launch with partner Penn Entertainment is expected to include 17 U.S. states.
CFRA analyst Kenneth Leon said Disney is also on track to cut total content spending by $3 billion in fiscal 2023.
“In (fiscal 2024), we see modest growth from advertising and affiliate license revenue; streaming revenue should also accelerate,” Leon said.
CFRA has a “buy” rating and $105 price target for Disney.
The 27 analysts covering DIS stock have a median price target of $108, suggesting double-digit upside over the next 12 months. However, investors should always conduct research before making important investment decisions.
What can we expect in the coming years?
Disney will likely only improve its performance in the coming years if it can demonstrate to investors its transition to a streaming video model can be profitable. In addition, the company will likely need to restructure or divest a significant amount of its legacy linear TV assets to convince investors those assets will not be an albatross around Disney’s neck over the long term.
Disney will need to continue to grow its subscriber count for Disney+, Hulu and other streaming platforms, particularly in the international market. Finally, Disney will need to continue to crank out hit TV shows and movies while managing surging production costs.
Leon said the long-term Disney bull thesis is all about cost-cutting, restructuring and asset sales.
“We think DIS holds great value, with distinct assets that may be recognized using strategic realignment and likely spinoffs,” he said.
Morningstar analyst Matthew Dolgin said Disney’s streaming strategy will complement its unrivaled content libraries and valuable media franchises.
“The firm’s direct-to-consumer efforts, Disney+, Hotstar, Hulu, and ESPN+, are taking over as the drivers of long-term growth as the firm transitions to a streaming future,” Dolgin said.
“Over the past decade, Disney has demonstrated its ability to monetize its characters and franchises across multiple platforms — movies, home video, merchandising, theme parks and even musicals,” he said.
Morningstar has a “buy” rating and $145 fair value estimate for Disney.
Frequently asked questions (FAQs)
The median 12-month price target among the Wall Street analysts covering DIS stock is $108, suggesting double-digit upside from current levels. There are 25 analysts with “buy” or “outperform” ratings for Disney and only two analysts with “underperform” or “sell” ratings.
Disney’s split-adjusted intraday high was $203.02 on March 8, 2021.
Wall Street analysts covering Disney stock have a median 12-month price target of $108. Still, the true value of Disney’s stock over the longer term will likely depend on how successfully it can grow and monetize its streaming subscriber base, manage its content costs, and divest and restructure underperforming legacy TV and movie assets.
In the near term, Disney can likely improve its perceived market value by following through on Iger’s pledge to demonstrate that the company’s streaming business can turn a profit.