Due to its famous series and recognizable individuals, Walt Disney ( DIS 0.29% ) Although it is a well-known company today, that does not necessarily mean it has proven to be a lucrative investment. Indeed, in the last ten years, the stocks have generated a cumulative return of just 14%, significantly underperforming the overall market. S&P 500 By a significant amount. At the time of writing this. leading media company’s stock It is currently trading at a 57% discount compared to its highest price in early 2021.
Is it possible that investing in Disney is a smart move at the current lower price?
Promising outcomes
Disney is currently experiencing a positive trend as it recently announced strong financial performance for the third quarter of its fiscal year 2024, ending on June 29. The company exceeded expectations with a revenue of $23.2 billion, showing a 4% increase compared to the previous year. This growth was primarily fueled by a 2% rise in the Experiences sector and a 4% increase in the Entertainment division, which includes Disney’s diverse media holdings.
Furthermore, Disney witnessed an improvement in its financial performance. profit per each share (EPS) increased by 35%. Management restated its commitment to finding and implementing significant cost savings amounting to $7.5 billion. CFO Hugh Johnston stated, “We will persistently pursue this goal in order to improve profitability and reinvest in the business given the promising opportunities we have.” Quarter 3 earnings call in 2024 .
The leadership team showed their optimism by increasing their full-year adjusted EPS guidance. They are now anticipating a 30% increase in this figure compared to fiscal 2023.
Transitioning to a new situation or phase.
The main concern affecting Disney’s stock is the unknown approach the company will take to navigate the shift in the entertainment industry from cable TV to streaming services. Some believe that Disney entered the streaming market with Disney+ too late in November 2019. Netflix The tremendous success achieved by ‘s up to that moment indicated that streaming was set to become the primary method through which people consumed video content.
However, it is worth acknowledging the progress the company has made so far. The collective streaming platforms under Disney, such as Disney+, Hulu, and ESPN+, have reported… income received from regular business operations The company reported a profit of $47 million, marking a significant turnaround from the $512 million loss in the same period last year. This positive result was driven by a 15% increase in revenue.
Having amassed 154 million subscribers, Disney+ appears to be a standout performer in the competitive landscape of worldwide streaming services. Additionally, the forthcoming introduction of a dedicated ESPN streaming application in 2025 implies that Disney is poised to continue expanding its subscriber base further.
The most recent press release states that we are still on course for the profitability of our combined streaming services to increase in the fourth quarter.
Although Disney’s traditional business model is declining due to households canceling their cable subscriptions, it is still profitable. The company’s revenue decreased by 7% in the most recent fiscal quarter, but the division generated nearly $1 billion in operating income. , great for an impressive profit margin of 36%.
Zoom out
It can be tough to digest a stock having dropped by 57% over the last three and a half years. Despite this, remaining optimistic is straightforward. Disney’s strong brand awareness and unique intellectual property hold significant value. Additionally, Disney stands out in the media and entertainment sector for its ability to effectively capitalize on this intellectual property, be it through movie theaters, traditional TV channels, online streaming services, amusement parks, or consumer goods.
Given that Disney’s shares are currently trading at less than 18 times the fiscal 2024 forecast adjusted EPS and under 16 times the outlook for fiscal 2025, I am confident that Disney appears to be a very attractive buying opportunity at the moment.
