Disney Stock: Will its Tides Turn?

Walt Disney (DIS) eroded its shareholders’ wealth in 2021. It’s worth noting that shares of this media and entertainment giant are down over 16% on a year-to-date basis, compared to a 24% increase in the Nasdaq composite index. 

Furthermore, investor sentiments on Disney stock remain negative, as reflected in the TipRanks’ Stock Investors tool. About 1.7% of the investors who hold portfolios on TipRanks have lowered their exposure to Disney stock in the last 30 days. I have a Neutral view on Disney stock.

What’s Hurting Disney?

The pressure on Disney stock stems from the moderation in its paid subscriber base. On a quarter-over-quarter basis, Walt Disney managed to add 2.1 million paid subscribers for Disney+ in Q4. This compares unfavorably with 12.4 million subscriber additions in Q3 on a sequential basis.

The sharp drop in paid subscribers growth reflects the weakness in Disney+ Hotstar, the company’s streaming platform in India. Disney CEO Bob Chapek warned earlier that the pandemic-led production delays and the annual expiration of a large number of subscriptions in India would weigh on its global paid subscriber base. 

What’s Next for Disney?

Despite the slowdown in paid subscriber addition, Chapek remains upbeat over the long-term prospects of the company. During the Q4 conference call, Chapek stated that the company is focused on the “DTC (direct-to-consumer) business for the long-term, not quarter-to-quarter.” 

He added that Disney is “on the right trajectory” and expects to acquire 230 million and 260 million paid subscribers for Disney+ by the end of FY24. Further, Chapek sees Disney+ achieving profitability during the same time. 

In response to Disney’s FY21 guidance, Wells Fargo analyst Steven Cahall stated that Disney, on average, will have to add 27 million subscribers every year from “FY22 through FY24 to reach its midpoint 245mm subscriber guidance.”

Cahall blamed the “slowing content machine” for the slowdown in subscriber growth and expects increasing content amortization to support subscriber growth. Cahall has a Buy rating on Disney stock, with a price target of $196 (29.8% upside potential).

Wall Street’s Take

Given the weakness in its subscriber growth rate, Wall Street maintains a cautiously optimistic outlook on Disney stock. On TipRanks, Disney has received 17 Buys and 6 Holds, for a Moderate Buy consensus rating.

Meanwhile, Disney scores a 9 out of 10 from TipRanks’ Smart Score rating system, implying it will likely outperform the market.

See Top Smart Score stocks >>

The average Walt Disney price target of $205.10 implies 35.8% upside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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