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Headlines
- Disney stock is trading significantly below its peak from March 2021.
- Multiple factors, including competition in streaming and challenges in the theme park business, contribute to this decline.
- Disney's recovery prospects are influenced by mixed economic conditions and consumer confidence.
Disney stock (NYSE) is currently priced at $86 per share, which is about 57% below its peak of approximately $200 in March 2021. This decline has been influenced by several factors, including slowing subscriber growth and increasing competition in Disney's streaming business. Additionally, the linear TV segment has experienced weak performance due to decreased advertising and a decline in affiliate revenues in the domestic market. While the theme park business has performed well since reopening post-Covid-19, the near-term outlook remains uncertain as Disney anticipates higher costs and a normalization in attendance.
In Q3 FY'24, the parks business saw a modest 2% increase in revenue from the previous year, reaching $8.4 billion, while operating profit declined by 3%, reflecting broader trends in communication stocks.
Despite the challenges, Disney's streaming business has shown improvement, with its three flagship services – Disney+, Hulu, and ESPN+ – reporting about $47 million in operating profits in Q3, compared to a loss of $512 million in the previous year. The theatrical business is also experiencing a revival with the success of the new animated movie Inside Out 2. However, Disney's valuation is currently estimated at around $137 per share, about 50% higher than the current market price.
While Disney stock appears undervalued, the potential for significant short-term recovery might be limited by mixed economic conditions and weaker consumer confidence, which could impact its theme park business. The Experiences reporting segment, including theme parks and cruise liners, contributed about 70% of Disney's total operating profit last year. Our analysis of Disney's post-inflation shock trends compares recent performance to the 2008 recession.
