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Disney: Streaming and Metaverse Could Warrant Higher Multiple
Stock Analysis & Ideas

Disney: Streaming and Metaverse Could Warrant Higher Multiple

Shares of Disney (DIS) were red-hot following some spectacular Fiscal Q1 2022 earnings results. The company clocked in $1.06 in per-share earnings, much higher than the analyst consensus of $0.63.

With 11.8 million Disney+ subscribers additions, it’s apparent that Disney stock probably should not have fallen in sympathy with Netflix (NFLX) after it clocked in its underwhelming result. Though DIS stock rallied over 3.3% post-earnings, I still think investors are discounting Disney’s reopening upside and new growth levers that could make it worth a much higher, tech-like multiple.

With intriguing growth pathways, ranging from the metaverse to streaming, I think it’s just a matter of time before Disney stock recovers from a rut it probably never should have fallen in.

Given the caliber of business you’re getting from Disney and looming reopening catalysts, I find the 4x sales multiple on shares to be way too low. I am bullish on Disney stock, even if the COVID-19 pandemic doesn’t go endemic this year.

Disney Doubles Down on Video Streaming, but What about the Metaverse?

Disney is putting up a big fight with top rival Netflix in the video-streaming arena. Undoubtedly, the House of Mouse may be a top concern for Netflix CEO Reed Hastings as he attempts to move on from one of the worst earnings-induced sell-offs in recent memory.

While I think Netflix and Disney+ can both prosper in video-streaming, I would still give the edge to Disney. With approximately $33 billion to be spent in content production in 2022, Disney will have more must-see films and TV shows flowing steadily out of its pipeline.

In terms of quality, it’s tough to compete against Disney. It has all the beloved American brands, and CEO Bob Chapek is not afraid to bring the old-time company into the new age, with intriguing new technologies.

Undoubtedly, the metaverse is seen as the next frontier for many firms. It will be a whole new world (please, forgive the pun) for Disney. However, with uncertainties as to when and how the metaverse will take off, it’s really tough to factor in metaverse growth prospects as a part of the valuation process.

At these depressed levels, it seems that almost zero metaverse hype is baked in the stock. If anything, Disney’s solid video-streaming plan and reopening upside in the parks business may not yet be factored into the share price just yet.

Indeed, it seems as though Disney is more into augmented reality (AR) technologies, blending the physical and digital at this juncture. When asked about the metaverse in an interview conducted by CNBC, Chapek didn’t give too many specifics, but he did remark of an opportunity from the “blending of the physical and the digital in one environment.”

Undoubtedly, augmented reality seems like a natural first step before a fully-immersive metaverse powered by virtual reality (VR) headsets. With so many breathtaking technologies developed by Disney’s creatives, I wouldn’t be surprised if Disney is betting big on AR rather than VR or the metaverse.

AR Tech First, Metaverse Tech Later?

Yes, the metaverse is full of potential, but it may be more of a pipe-dream than some investors, most notably those scooping up NFTs and digital real estate, expect, at least over the medium term. I believe AR will serve as a significant stepping stone before the metaverse takes off, as the internet did over two decades ago.

As a Disney shareholder, I’m comforted that Disney isn’t spending money hand over fist on VR initiatives, as Meta Platforms (FB) has been doing of late.

What I took away from Chapek’s latest interview is that Disney is well-equipped to place a big bet on AR first and perhaps VR later. Indeed, Disney seems poised to dip a toe gradually into the “metaverse” waters, rather than jumping immediately into the deep end with no idea of what swims underneath.

Wall Street’s Take

Turning to Wall Street, DIS stock comes in as a Strong Buy. Out of 20 analyst ratings, there are 15 Buy recommendations and five Hold recommendations.

The average Disney price target is $194.26, implying an upside potential of 29.9%. Analyst price targets range from a low of $165.00 per share to a high of $229.00 per share.

The Bottom Line on Disney Stock

Disney is a wonderful company at a pretty attractive price right now. The company may not be the metaverse play to own if you’re expecting a Matrix-like platform sometime soon. For such exposure, Meta stock seems like the way to go.

If you’re looking for next-level AR experiences and reopening upside, though, DIS stock may prove severely undervalued amid the market’s latest slide.

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