Disney (DIS) stock has fallen into an unforgiving tailspin. Investors continue throwing in the towel over analyst downgrades and the underwhelming quarter that revealed sluggishness in the company’s Disney+ streaming service.
Add renewed COVID-19 resurgence fears in Europe into the equation, and it’s not a mystery as to why Disney stock has taken such a violent turn to the downside. Despite the now well-known negatives, Disney plans to turn the ship around. For that reason, I remain bullish on DIS stock. (See Analysts’ Top Stocks on TipRanks)
Disney Stock down 25% over Transitory Issues
Disney stock is now down approximately 25% from its all-time highs hit earlier this year. While investors and analysts have the right to be concerned, the sell-off appears overblown beyond proportion. Disney’s amusement park and cruise businesses have still yet to operate at full capacity. While investors have been more focused on Disney+, I do think that evidence of waning growth against difficult year-over-year and quarter-over-quarter comparables does not signify the start of a trend.
More quality content is on its way. ESPN sports-betting ambitions are encouraging, as to are metaverse ambitions. While still nascent, the metaverse could evolve into a significant part of the business once its abstract concept is ready for prime time. Furthermore, there is ample room in the way of reopening upside, with much pent-up demand that will be difficult to meet fully until the pandemic goes endemic.
Still, nobody knows when the pandemic will end. The recent surge in Austria does not bode well for hopes of a complete return to normalcy in 2022. For that reason, Disney’s amusements business is likely to make a return in a gradual and very modest fashion.
Disney+ Growth Woes Seem Temporary
For now, Disney+ is the needle-mover, and the growth isn’t looking great. That said, there are no reasons why growth can’t reaccelerate as management takes a step back to consider its plans for the service. At the end of the day, content is king. Still, there are instances where the slate of content may be lacking, and other times, it may be incredibly powerful.
Streaming rival Netflix (NFLX) isn’t immune to the same forces. Squid Game was a phenomenon, and there are no reasons why Disney can’t have its own profound success. Indeed, Mandolorian and several other Star Wars series have been reasons to stay subscribed to Disney+. They’re must-see flicks for Star Wars fans. Similarly, Marvel’s series has hit the spot with superhero fans. But the question remains, what about general audiences who aren’t big into science fiction, cartoons, animated feature films, or superheroes?
In Canada, Star, a section on Disney+, offers a deeper line-up of films that cater to more mature audiences. With plans to eventually roll Hulu into Disney+, investors should expect the content library and frequency of releases (CEO Bob Chapek wants to double-down on Hulu) to really pick up traction in the U.S. and international markets that Disney+ has yet to tap.
Given such incredibly ambitious streaming plans, today’s Disney+ growth struggles seem transitory. Disney has already cut its dividend, and it has the capacity to take its content production to the next level. With that, Disney+ is likely to close the gap with streaming rivals like Netflix.
Wall Street’s Take
Turning to Wall Street, Walt Disney has a Moderate Buy consensus rating, based on 17 Buys and six Holds assigned in the past three months. The average Walt Disney price target of $205.10 implies 35.5% upside potential.
Analyst price targets range from a low of $172 per share to a high of $263 per share.
Disclosure: Joey Frenette owned shares of Disney at the time of publication.
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