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Are the Tides Turning for Disney?

Shares of the media and entertainment giant Disney (NYSE: DIS) are under pressure. The negative impact of the COVID-19 pandemic on its theme parks business, increased competition in the streaming business, and general selling in the market amid a challenging macro and geopolitical environment have dragged Disney stock lower. 

Given the tough operating environment, Disney stock has lost about one-third of its value in 2022. Further, it has declined over 44% from its 52-week high. 

Now What?

While the macro headwinds and increased competition could continue to play spoilsport for Disney, its recent financial performance has been impressive. It’s worth mentioning that Disney’s paid subscribers have increased at a healthy pace in the first six months of the current fiscal year. For instance, it added 11.8 million and 7.9 million Disney+ subscribers in Q1 and Q2, respectively. 

Furthermore, its total subscriptions for all of its DTC (direct-to-consumer) product offerings stood at 205 million at the end of Q2. This compares favorably to the recent performance of the streaming giant Netflix (NASDAQ: NFLX), which lost about 200,000 subscribers in Q1. 

While Disney’s paid subscriber base has been growing, its parks, experiences, and products revenues are recovering well to the easing of restrictions. However, the company noted that some of its international parks and cruise ship operations remain impacted by the pandemic. 

Rosenblatt Securities analyst Barton Crockett maintained a Buy recommendation on Disney stock post the Q2 results. Crockett is upbeat about Disney’s subscription growth. Moreover, he expects a strong performance from movies and parks. He added, “a recession would hit the parks. But with the shares down 30% YTD, that might already be priced in.”

Along with Crockett, most analysts are bullish on DIS stock. Its Strong Buy consensus rating is based on 16 Buy and six Hold recommendations. Further, the average Disney price target of $158.95 implies 52.4% upside potential to current levels.

Bottom Line

The recovery in the parks business, growing subscriptions, and strong content slate provide a solid growth platform for Disney. However, competition, macro headwinds impacting consumer spending, and uncertainty related to the pandemic could keep posing challenges in the short term. 

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