Disney: Can We Find the Golden Key to Get Into the House of Mouse?

Disney is on a strong move to start the year, along with the market, and it shows signs of recovery. 

With its popular former CEO back in charge, DIS is also in a good position right now, with the highly anticipated film “Avatar: The Way of Water” becoming the first film to reach more than $2 billion in global ticket sales since 2019.

Just a few years ago, during the pandemic, that box office number seemed unthinkable!

With the covid pandemic on the wane, Disney’ sits theme parks are also performing exceptionally well, delivering record results. And despite some losses, Disney+ has accomplished more in its first three years, compared to other premium streaming services, and is expected to continue its dominance in the market.

While DIS has seen a decline of 2 more than 5% in its price over the past year, it is up by a massive 26% year to date! This begs the question, is the stock cheap? Or Expensive?

To make things more confusing, Disney is currently trading at the same levels as in 2015, prior to the launch of its now rapidly expanding Disney+ service. 

But from my perspective, Disney has become an attractive investment opportunity, due to its prolonged decrease in stock value, particularly as its financial results for Fiscal 2022 showed significant yearly growth.

Still, it is essential to remember that Disney is undergoing a period of change, with investors evaluating the success of its expanding ventures like Disney+. However, the majority of the company’s income and profits are still generated from its traditional businesses. 

And with Disney stock surpassing the psychological $100 level, a question arises whether it can maintain its value above $100. At this level, DIS would still need to double to reach its all-time high from two years ago!

That’s a long way to go!

So, is Disney still cheap right now? Is this a golden key to getting into the House of Mouse? Let’s find out!

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But why get inside in the first place?

The pandemic greatly impacted many top media stocks, including Disney. The company had to close its theme parks for extended periods, and keep its cruise ships docked even longer. 

As the economy tries to return to normalcy, the performance of Disney’s Parks, Experiences, and Products division was very impressive.

Revenues from this segment are mainly derived from the theme park and resort ticket sales, and visitor spending on food, drinks, and merchandise.

This division saw a significant rebound from the last year’s results, which were greatly affected by the COVID-19 pandemic. Revenues amounted to $28.7 billion, a 73% increase from the previous year.

The division also achieved a record operating income of $7.9 billion, a significant improvement from the $471 million operating income in the previous year.

Despite this, Disney’s efforts to grow Disney+ have been successful, with the company leading the industry in subscriber numbers and reporting 236 million members in Q4, compared to Netflix’s 223 million.

As a result, Disney stated in Q4 that it expects to reduce operating losses in the future, and achieve profitability for Disney+ in the fiscal year 2024.

And with the return of CEO Bob Iger, there is speculation that the company may adopt a more assertive strategy to protect its market position.

I cannot think of a more suitable industry veteran to lead Disney, at this crucial stage for the media and entertainment industry.

But the door’s locked

The return of Bob Iger as CEO of Disney may bring the company the leadership it needs to overcome its challenges.

However, it’s worth noting that Iger’s previous tenure as CEO wasn’t entirely successful, as the struggles of Disney stock began long before
Bob Chapek assumed the role during the tumultuous COVID-19 pandemic.

The company also faces a difficult task in navigating the challenges of a recovering economy, amidst inflation and a potential recession.

This change in leadership takes place at a difficult time, just like when Iger previously handed the CEO role to Bob Chapek during the height of the pandemic.

And despite the current momentum in many of Disney’s segments, the reality is that 2023 will bring challenges in the form of inflation and rising interest rates, leading to consumers being more selective with their spending. 

The strong dollar will also make it harder to attract international visitors. While Disney remains a successful company, duplicating the success of the Avatar sequel may become more, difficult as cinema operators continue to struggle in filling seats, and generate profits.

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Finding the key

However, the long-term outlook for Disney, and other well-positioned media stocks remains optimistic. The company’s financial performance could significantly improve in the near future, if the economic downturn is brief, and its efforts to make its streaming services profitable are successful. 

At the same time, Disney’s content, characters, and brands are iconic, timeless, and highly profitable. Its ability to generate revenue from its intellectual property through multiple streams, has demonstrated that it is a company with strong growth potential that is not easily deterred.

Despite this, Disney continues to focus on cost restructuring, which includes streamlining marketing expenses, and improving the content lineup and distribution strategy, to consistently produce impactful releases that effectively drive the crowds in.

And should the company find the perfect mix of sugar, spice, and everything nice, buying DIS might just give you the golden key to enter the House of Mouse!

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