Shares of Walt Disney (DIS) are struggling mightily in 2023, despite CEO Bob Iger returning to the helm late last year to help the company navigate a volatile economy. The planned turnaround has so far been frustratingly slow for investors, as DIS is down 32% from its early 2023 highs, and is now 7.7% lower on a YTD basis - significantly underperforming the broader S&P 500 Index ($SPX), which is still up 8.2% on the year.
Longer-term, the stock is down 60% from its 2021 all-time highs, valuing the company at $147.46 billion by market cap. The drawdown in Disney stock has left the shares trading close to nine-year lows.
Let’s see if the House of Mouse can bounce back - or whether DIS will keep sliding to new lows.
The Modern Disney Business Model
Disney is among the most recognizable brands in the world and enjoys a wide competitive moat. It has expanded various businesses, including its theme parks, on the back of its storytelling power. Moreover, Disney’s vast content library and growing portfolio of films allowed it to enter the online streaming market, challenging incumbents such as Netflix (NFLX) and Amazon (AMZN) Prime Video for market share. It's difficult to identify any other media company that can so successfully engage with its consumers across generations.
The first Disneyland was opened in California back in 1955, where customers were charged $1 for tickets. Today, you would have to shell out at least $104 to set foot in Disneyland, indicating prices have surged over 10,000% in less than seven decades. Disney’s theme park business is quite resilient and continues to move the needle in terms of revenue growth.
Commenting on the latest quarterly results, Iger said the flagship Disney World resort is “still performing well above pre-Covid levels – 21% higher in revenue and 29% higher in operating income compared to FY2019.”
That loyal and highly engaged customer base has also allowed Disney to increase subscription prices for its streaming segment. While losses in the company's streaming business are weighing on investor sentiment, Disney expects the business to turn profitable in fiscal 2024.
Why Is Disney Stock Falling?
However, similar to other companies, Disney is wrestling with a higher cost base amid an inflationary environment. In the first nine months of fiscal 2023 (ending in September), Disney’s adjusted earnings per share declined by 9% year over year, pressured by lower enterprise ad spending and losses in its streaming business.
Disney expects to lower its expenses by close to $6 billion in fiscal 2024. While analysts expect its sales to rise by 5.2% year over year to $88.27 billion in fiscal 2024, adjusted earnings are forecast to surge by almost 30%.
In recent months, Disney has emphasized that it will offload non-core assets, providing it with the flexibility to boost its liquidity position and invest in growth projects. According to Bloomberg, Disney is near a deal to unload a controlling stake in its India operations to conglomerate Reliance Industries for $10 billion.
Due to India’s sizeable population, Disney India ended Q2 with 40.4 million subscribers. But the average revenue per subscriber (ARPU) in India is quite low at $0.59 compared to the global average of $6.58.
What Does Wall Street Expect for Disney Stock?
Disney stock is priced at 1.7 times forward sales and 18 times forward earnings - which is quite reasonable, given its earnings are estimated to rise by 24% annually between fiscal 2024 and fiscal 2028.
Out of the 26 analysts covering Disney stock, 17 recommend “strong buy,” two recommend “moderate buy,” six recommend “hold,” and one recommends “strong sell.” The average target price for Disney stock is $108.57, which is 35% above the current trading price, and in territory DIS hasn't seen since mid-February.
