- Reports Q4 2021 earnings on Wednesday, Nov. 10, after the close
- Revenue Expectation: $18.82B
- EPS Expectation: $0.52
It’s been getting tough for the world’s largest entertainment company to impress investors. This year, despite the reopening of its theme parks and movie theaters after the pandemic-triggered closures in 2020, shares of the Walt Disney Company (NYSE:DIS) have been underperforming.
What's weighing on the stock is the slowing growth in the entertainment giant's video-streaming business which competes head-to-head with Netflix (NASDAQ:NFLX).
Yesterday, DIS closed at $175.11, down about 1% for the year.
During the same period, Netflix gained more than 25%. The Disney+ streaming service, which had become the key growth driver for the California-based company during the pandemic, saw significant growth during the lockdowns, with its total number of subscribers swelling to 116 million by the end of July.
After its launch in November 2019, the service provided the company a much needed boost when sales from its theme parks, cruises and theaters plunged. But that expansion, according to Chief Executive Officer Bob Chapek, won’t be linear, meaning some softening is expected when the company releases its latest earnings later today.
This sluggish period, in our view, offers a good opportunity for long-term investors to accumulate Disney stock. With its theme parks, movie theatres and cruise lines back in operation after the COVID-19 shutdown, Disney has many avenues with which to surprise investors.
Legacy Business Growth Returning
Chapek told investors in July that reservations for the theme parks were strong despite the Delta variant. Disney expects to be fully staffed at its resorts by year-end, after tens of thousands of layoffs in 2020. All of Disney’s theme parks around the world are open, with attendance and related spending on the upswing. Revenue in that division soared fourfold during the summer quarter.
With the legacy business gradually reaching its pre-pandemic levels, Disney’s direct-to-consumer unit—the home of its streaming segment—is also narrowing its losses. Analysts at JPMorgan said in a recent note that they see a possible upside surprise over the long-term, driven by robust content and the launch of new markets.
The note said Disney stock may trade up as investors rebuild confidence in this path after two recent quarters of slower subscriber growth. However, an upside surprise could come from international growth and the company’s robust content.
To keep subscribers hooked as well as bring in new users, Disney has dozens of movies and television shows in production for the service. Over the next year, the company will continue to expand into new markets overseas where access to Disney+ is currently unavailable.
In a recent note to clients, Wells Fargo said investor concerns about subscriber guidance is overblown, and the company can still achieve its target of 260 million subscribers by 2024. Analysts at Goldman Sachs—among the biggest bulls on DIS shares—believe Disney’s rich pipeline of new original content and other proactive measures should help fuel additional subscriber growth.
Bottom Line
Disney continues to remain an attractive option for long-term investors due to the company’s dominant position in the entertainment industry. Any post-earnings weakness in Disney stock is a buying opportunity in our view, especially when Disney’s core business is returning to growth and the company has established itself as the second largest streaming entertainment provider after Netflix.