Does Disney’s Big Overhaul Make The Stock A Buy?

DIS: Walt Disney logo
Walt Disney

Disney (NYSE:DIS) posted a stronger-than-expected set of Q1 FY’22 results on Wednesday and announced a major reorganization of its businesses. While Disney’s overall revenue grew by 8% year-over-year to $23.5 billion, profits were up by about 11% to $1.28 billion. The growth was largely driven by the theme park business, which is seeing stronger footfalls and higher customer spending as Covid-19 eases both in the U.S. and overseas. Theme park revenue was up about 27% versus last year. That said, Disney’s closely watched streaming business had a more mixed performance over the quarter. Although streaming revenues were up by 13% versus last year to $5.31 billion, the flagship Disney+ service lost subscribers for the first time with the total subscriber base falling by 2.4 million over the quarter to 161.8 million, partly due to declines in India, where the company lost rights to the IPL cricket tournament. Things could remain somewhat sluggish on the subscriber front over Q2 as well, as Disney just carried out a price hike on Disney+ in the U.S. in December. That said, Disney is now focusing more on profitability, guiding that the service was likely to turn profitable by the end of 2024.

Disney is also looking to considerably restructure its business with Bob Iger back at the helm. The company will operate under three segments, namely Disney Entertainment which includes most of the streaming and media operations, a Theme Parks segment, and an ESPN division which will hold the company’s sports-related businesses. The move appears to give more control to creative heads within the company, making them more accountable for the financial performance of their content. Moreover, the move also appears to put a greater emphasis on sporting content as Disney looks to unlock more value from ESPN. Disney is also targeting about $5.5 billion in cost savings, with $3 billion in cuts on the content side and $2.5 billion from selling, general and administration, and other operating costs. The cost cuts will also entail about 7,000 job cuts, roughly 3% of Disney’s workforce.

Now, Disney stock was up by about 6% in pre-market trading on Thursday morning. While we were very positive about Disney stock when it traded at levels of about $90 in December, we would be a bit more circumspect at current (pre-market) prices of about  $118 per share. Economic headwinds and concerns about consumer spending could hurt the Parks business which has considerably supported the company’s profitability in recent quarters. Moreover, while Disney is focusing on the profitability of the streaming side, competition remains stiff and it remains to be seen whether Disney’s efforts will drive returns for investors. We value Disney stock at about $121 per share, which is roughly in line with the market price. See our analysis of Disney valuation for more information on what’s driving our price estimate for Disney and how its valuation compares with peers. See our analysis of Disney revenue for a closer look at the company’s key revenue streams and how they have been trending.

Relevant Articles
  1. Can Disney Stock Double To Pre-Inflation Shock Highs Of Over $200?
  2. With Streaming Business Turning Around, Is Disney Stock Attractive At $105?
  3. Up 25% This Year, Will Disney’s Strong Run Continue Following Q2 Results?
  4. Disney Stock Has 2x Upside If It Rises To Pre-Inflation Shock Highs Of $202 Per Share
  5. Disney Stock Could Rise Over 2x If It Recovers To Pre-Inflation Shock Highs
  6. Will Slowing Streaming Growth Impact Disney’s Q3 Results?

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Feb 2023
MTD [1]
YTD [1]
Total [2]
 DIS Return 3% 29% 7%
 S&P 500 Return 1% 7% 84%
 Trefis Multi-Strategy Portfolio 1% 13% 254%

[1] Month-to-date and year-to-date as of 2/9/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios

See all Trefis Price Estimates