Shares of Disney (DIS) are on the retreat after peaking back in early March. The stock now finds itself fresh off a 16% correction, which was greatly exacerbated by its second-quarter earnings results.
The results revealed soft revenues and slower-than-expected momentum in the magical company’s streaming platform and top growth driver Disney+. Disney+ now has 103.6 million subscribers, well short of the 110 million the Street expected. (See Disney stock analysis on TipRanks)
It’s Not Just About Disney+, Folks!
Over the past year and a half, Disney+ has grown to become one of the top needle movers for Disney stock. This was bound to change in the post-pandemic environment.
The incredible growth in the streaming platform has rewarded Disney stock in spite of the turmoil suffered by its other major segments, which have borne the brunt of the COVID-19 impact.
As the economy gradually reopens, Disney has a lot going for it. Visitors are returning to its parks, cruises and movie theatres, all of which have suffered from severely suppressed numbers amid the COVID-19 pandemic.
Pandemic headwinds for Disney’s parks were a huge tailwind for Disney+, as stay-at-home orders drove people toward streaming content. As the population makes the move towards normalcy, the tables will turn again and parks will start to outshine streaming.
Unlike most other pure-play video streaming plays like Netflix (NFLX), Disney stands to be a net beneficiary from the economic reopening, even if Disney+ takes a lengthy breather.
Post-COVID Hangover Unlikely to Last
Had it not been for Disney+, shares of Disney would not have hit new all-time highs back in March of 2021. Hats off to Disney’s new CEO, Bob Chapek, who weathered the storm with Disney+. Chapek filled the shoes of long-time top boss Bob Iger, who stepped down amid the pandemic.
As stay-at-home orders disappear, streaming growth has likely peaked for the year. Many will opt to ditch video streaming for movie theatres and other forms of entertainment that were unavailable during the pandemic, and Disney+ will slow down.
Looking way out into the future, Disney+ will probably pick up traction again. The streaming platform has some appealing content flowing in, and that could fuel a drastic subscriber growth reacceleration. It would be an mistake to think a post-pandemic slowdown in Disney+ is the start of a long-term trend or that the streaming business can’t reaccelerate in the future.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, DIS stock comes in as a Strong Buy. Out of 21 analyst ratings, there are 18 Buy and 3 Hold recommendations.
As for price targets, the average analyst price target is $209.89. Analyst price targets range from a low of $163.00 per share to a high of $230.00 per share.
Disney’s Park Business Preparing to Roar
The latest easing of mask rules is a significant sign that the world is en route to conquering COVID-19. Many shut-in people will make a return to the physical realm, with ample disposable income in hand to spend on real-life experiences.
As restrictions gradually ease, Disney’s iconic parks will be tasked with meeting pent-up travel and leisure demand. The next big step could be a gradual increase in park capacity, causing attendance to shift toward pre-pandemic levels. Indeed, Disney’s coming parks tailwinds seem way stronger than near-term headwinds that cause Disney+ to pull the brakes after its incredible growth streak.
So, as investors punish the stock for any modest (and probably temporary) slowdown in Disney+ subscriber growth, contrarians would be wise to punch their tickets into Disney. Now would be the time to take action, before the “house of mouse” has a chance to fire on all cylinders across all fronts.
Disclosure: Joey Frenette owned shares of Disney at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
