Disney (DIS) stock can’t seem to catch a break these days, with shares immediately plunging following the release of an underwhelming quarter that saw waning growth numbers in its streaming service Disney+.
Undoubtedly, Disney is a reopening play, with its amusement businesses at ground zero of COVID-19’s impact, but with a high-growth stay-at-home business in Disney+. With the first Omicron cases popping up in the U.S., Disney stock seems to be punished as the company was a pure lockdown play, now that the Disney+ hype has died down.
I think it’s a mistake to think Disney’s streaming growth prospects will lag forever. While Omicron will continue weighing on amusement parks and cruises, there remains pent-up demand that will have a chance to be met once a potential Omicron wave is put behind us. Indeed, it’s easy to throw in the towel on Disney here, but with nothing but pessimism baked in at around $146 per share, I think the risk/reward looks incredibly attractive.
Why? The prospect of a re-acceleration of user growth in the streaming business seems to be heavily discounted.
Further, Disney’s metaverse ambitions don’t seem to get nearly enough respect, as the company looks to make a push into what could be the new realm of digital technology. The metaverse appears like a far-fetched money-losing endeavor today. Still, given another pandemic-fuelled boost to technological innovation, it likely won’t be long before investors gain a better appreciation for metaverse prospects.
Given the drastic drawdown, underrated growth prospect, and mid-2022 reopening upside potential, I remain incredibly bullish on Disney stock. (See Analysts’ Top Stocks on TipRanks)
Disney’s Metaverse Ambitions Are Real
As capacity falls for the physical Disneyland or Disneyworld, the company has an opportunity to invest in a digital version in the metaverse. Yes, the metaverse has been a massive buzzword ever since Meta Platforms (FB) changed its name and growth focus. Still, the concept of a metaverse may soon go from an abstraction to something we’ll quickly grow accustomed to and take for granted, like the smartphones of today.
Disney has an incredible roster of unbelievable brands and content, which will translate very well as the company pushes into the metaverse. Arguably, Disney’s powerful brands make the company’s metaverse push somewhat more favorable than most other companies, including Meta Platforms.
Indeed, CEO Bob Chapek has done a spectacular job introducing technology to evolve the house of mouse amid profound macroeconomic pressures. The company aims to “connect the physical and digital worlds” to allow “storytelling without boundaries.”
The market may not be so enthused by the metaverse push now, as Omicron variant jitters linger. Over time, though, I think Disney’s version of the metaverse will become impossible to ignore, potentially evolving into a segment that can support growth on par with Disney+.
What about Disney+?
Disney+ may have its best growth days behind it, but with plans to bolster content production, it’s a mistake to think that the streaming service can’t bring the fight with other SVOD (Streaming Video on Demand) companies to the next level. All it takes is one incredible smash-hit show or series to reignite growth. Add potential with HULU and ESPN+ into the equation, and it seems like the company can offer a value proposition to consumers that will be hard to match.
Sure, Disney+ is in a bit of a funk, but it’s unlikely to last as the company funnels money into content production, catering to a wider range of consumers.
Wall Street’s Take
Turning to Wall Street, Disney has a Moderate Buy consensus rating, based on 17 Buys and six Holds assigned in the past three months. The average Disney price target of $204.05 implies 38.6% upside potential.
Analyst price targets range from a low of $168 per share to a high of $263 per share.
The Bottom Line on Disney Stock
Disney’s not just a movie or amusement park play anymore. It’s evolved into a tech company, one that’s far more innovative than most investors give it credit for.
The company’s metaverse ambitions and streaming plans are capable of incredible COVID-resilient growth. Once the pandemic does finally wind down, the floodgates will be open for the parks and cruises business. Then, Disney will really be firing on all cylinders, and its stock is likely to be in a whole new world.
Disclosure: Joey Frenette owned shares of Disney at the time of publication.
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