Is Walt Disney Stock a Buy After Its Quarterly Report?

Last quarter's results indicate that The Walt Disney Company is undergoing significant changes that could reshape its business structure in the next year.

The response from the market to Disney's fiscal first-quarter results was less than enthusiastic. However, despite some warning signs within the numbers, there is a more optimistic narrative emerging.

Investors are encouraged to adopt a glass-half-full perspective, especially considering the stock's decline since its peak in 2021.

This leads to the conclusion that Disney stock might be worth buying right now.

It’s important to acknowledge that even the most ardent supporters of Disney have valid concerns, notably regarding its underperforming cable and network television sector.

Despite these questions, many issues raised have satisfactory explanations.

Performance Overview

In the three months ending in December, Disney generated $24.7 billion in revenue, with a profit of $1.76 per share. These figures surpassed both last year's performance of $23.5 billion and $1.22 per share and also exceeded expectations of $24.67 billion and $1.45 per share.

The company has shown strength in its film sector, crediting successes like Moana 2. Additionally, its theme parks and hotels contributed positively to its performance. However, the most notable achievement was in Disney's direct-to-consumer (DTC) streaming sector, primarily driven by Disney+. Higher subscription prices contributed to a 9% increase in this division’s revenue, bringing it close to $6.1 billion.

Nonetheless, it's important to note that not all segments are thriving. Disney's linear television business experienced a 7% drop in revenue, largely due to a growing trend of viewers moving away from cable in favor of streaming options, including those offered by Disney itself.

ESPN represents another concern, as it has struggled to maintain meaningful growth since early 2022, despite seeing an 8% increase in revenue.

Perhaps the most alarming aspect for investors was a slight decline in the total number of streaming subscribers. While Disney+ gained some new domestic users, growth has slowed, particularly in international markets, with ESPN+ also losing subscribers.

Future Revisions

The Walt Disney Company is currently in a transitional phase as it prepares for a significant merger involving Hulu and the streaming service FuboTV. After this merger, Disney will own 70% of FuboTV, which will operate independently. This shift will allow Disney to concentrate more on promising avenues like Disney+ and halt the reporting of Hulu's stagnating metrics.

This strategic move not only sets the stage for a sports-dedicated streaming service but also reflects Disney's adaptability in an evolving entertainment landscape.

Disney has canceled its planned sports joint venture, Venu, with Fox and Warner Bros. Discovery shortly after announcing its intentions for FuboTV. However, the cancellation does not hinder Disney’s capacity to develop similar partnerships in the future. Furthermore, plans for a standalone version of ESPN's streaming service remain on track for a late 2023 launch.

This new service is anticipated to provide the live programming available on the regular ESPN cable channel, complemented by exclusive on-demand content. As surveys have shown, live sports remain a primary reason viewers are willing to pay for cable services.

While some may worry that these developments could harm Disney's linear TV business, it’s crucial to understand that linear television currently represents only a fraction of Disney's revenue and operating income. By reallocating resources away from television and towards more promising growth opportunities—such as theme parks, movies, and streaming—Disney could be making a strategic long-term choice.

Conclusion

This discussion presents a lot to consider. Given the inconsistent performance Disney has exhibited since 2020, many investors might feel apprehensive about the company's direction.

Yet, the recent strategic changes suggest that Disney is preparing for growth, and indications for the company’s future are looking brighter than they have since the onset of the COVID-19 pandemic. Still, it's crucial to remember that there may be further volatility ahead, and it could take time for investors to recognize and trust the improvements being made.

Disclaimer: The author does not hold any position in the stocks mentioned. The investor holds positions in and recommends Walt Disney Company.

Disney, Stock, Streaming