More than two months have passed since the actions of Walt Disney (DIS 0.07%) closed in the triple digits. Oh, the stock had its intraday highs north of $100 during that time. He’s doing that dance now. However, like the caramelized sugar crust of a crème brûlée, the roof proved to be fragile. The crackling sound turns the head, but finally we fall into the pudding.
Will it be different this time? The market is showing signs of life, and Disney itself is on a roll. He has a beloved former CEO back to the helm. It’s the studio behind the movie that will soon be the first movie since 2019 to break $2 billion in ticket sales worldwide. Avatar: The Way of Water. Disney’s industry-leading theme parks are achieving record results. Abrupt losses aside, Disney+ has achieved more than any premium streaming service has — or likely ever will — in its first three years of streaming.
Can Disney stock stay and close above $100 this time? Can he hold on to the round, knowing humbly that he still has to double from there to get back to the all-time highs he reached two years ago? It’s time to handle a spoon.
From deserts to desserts
The pandemic has done a number on many major media stocks. Disney had to close its theme parks for months, tying its cruise ships to docks even longer. People have lost affinity for the multiplex. Advertisers had to reduce their expectations on how much they were willing to spend to reach the audience that stayed at home.
Eventually, Disney found its way out of the wildest ride in the wilderness. It once again dominated the box office, clearing three of the industry’s four theatrical releases of 2022. It expanded its fleet to five cruise ships last summer. And it has adjusted prices and introduced premium offers to increase per capita spending at its domestic theme parks by 40% from pre-pandemic levels. Its premium streaming services now account for nearly a quarter of Disney’s revenue, helping to offset weakness in its traditional media business.
Disney is doing better than its stock chart suggests, but the road to recovery is paved with potholes. The biggest issue — and what returning CEO Bob Iger has made his top priority — is pouring red ink over Disney’s thriving but bleeding edge streaming services. The segment led by Disney + produced an operating loss of more than $4 billion in fiscal 2022. Pressure must be applied to the wound until the bleeding stops.
Other businesses, including its theme parks, consumer products and studios, are moving in the right direction, but 2023 poses challenges: Will economic uncertainty hold back consumer spending? What will happen to Disney attractions and cruise ships if there is less money to spend on travel?
The House of Mouse delivers brilliant results in its theme parks, but it comes with a price gun and polarizing premium offerings that won’t pack the same kind of punch in a recessionary environment. Actually, you have to be that tall to write.
Iger gave the CEO to Bob Chapek at the worst possible time, as the world had fallen into a pandemic funk. He takes them back in an equally challenging moment. The recovery for consumer businesses will have to deflect around inflationary and recessionary cones along the way.
The good news, again, is that the stock is still half of where it was at its peak 22 months ago. Overall market valuations have been adjusted lower, and it’s not as if Disney is cheap, at 24 times forward earnings estimates.
The long-term future remains bright for Disney as well as other well-positioned ones media stocks. Disney’s bottom line could increase dramatically in the coming years if the economic recession is short and the resolution to make its streaming services profitable is strong. Disney+ rolling out price hikes and ad-supported plans last month should help.
So have a little faith, and make an appetite. You don’t need to trade your dessert spoons for shovels.