Source: PaxForex Premium Analytics Portal, Fundamental Insight
In contrast to the broader stock market's recovery from a challenging 2022, Walt Disney shares have experienced a different trajectory in 2023. The stock has been on a continuous decline, hitting a 52-week low on September 7th, which is a disheartening outcome as the company commemorates its centenary in business.
The plummet in the entertainment behemoth's share price can be attributed to a myriad of challenges facing Disney this year. Ongoing disputes with cable provider Charter Communications and the state of Florida continue to cast shadows, while a duo of industry strikes involving writers and actors has brought the production of new content to a standstill. Furthermore, Disney's streaming service, Disney+, has struggled to achieve profitability, and its traditional linear television business is witnessing a decline. The list of predicaments confronting Disney is undeniably lengthy.
Given this current situation, it's only natural for potential investors to be cautious about acquiring Disney shares. However, if one shifts their focus from the company's short-term woes and looks towards the long term, the perspective begins to change significantly. After all, Disney's enduring success over the course of a century is a testament to its resilience and ability to navigate challenges.
Considering the short-term challenges currently confronting Disney, it can be challenging to discern the long-term perspective. The company's linear TV business, exemplified by its ABC network, is feeling the financial squeeze in the wake of the streaming revolution and the emergence of formidable competitors like Netflix. As CEO Bob Iger astutely observed, the undeniable trends of cord-cutting are reshaping the entertainment landscape.
However, Disney possesses the strategic prowess to adeptly navigate these industry shifts, thanks to its extensive trove of cherished characters and iconic brands that constitute the bedrock of Disney's intellectual properties. From the beloved Mickey Mouse to the expansive Marvel Comics universe, Disney's characters and franchises enjoy global recognition. This explains why Iger emphasized that the company's future growth and value creation over the next five years are inherently intertwined with its brands and franchises.
These brands represent invaluable assets with fervent fan bases, capable of generating revenue through multiple channels. Take, for instance, the astonishing success of "Avatar: The Way of Water," the third-highest-grossing film of all time, expected to become Disney's most significant domestic digital home video release. Additionally, Disney plans to introduce an Avatar-themed experience at its Disneyland theme park in the near future.
As demonstrated by the "Avatar" film, these brands are not confined to the silver screen; they yield continuous revenue streams that extend far beyond the box office. Revenue streams come from sources such as toy sales, apparel, merchandise licensing agreements, and content that entices customers to engage with Disney's streaming services and visit its theme parks. This integral aspect of Disney's business, known as the Disney Parks, Experiences, and Products segment, exhibited robust revenue growth in 2023. In the company's fiscal third quarter, which concluded on July 1, this segment generated $8.3 billion in revenue, a 13% increase from the $7.4 billion reported in 2022.
Furthermore, in fiscal Q3, the segment's operating income reached $2.4 billion, more than doubling the $1.1 billion generated by Disney's film and television arm, housed under the Disney Media and Entertainment Distribution division. Over three quarters, the Disney Parks, Experiences, and Products segment amassed $7.6 billion in profits, in contrast to the Media and Entertainment Distribution division's $2.2 billion, underscoring the significance of these supplementary revenue streams.
While Disney's film empire remains robust, with the Media and Entertainment Distribution division reporting $14 billion in fiscal Q3 revenue, nearly 70% more than the Parks, Experiences, and Products segment, the division's low operating income can be attributed in part to the non-profitability of the Disney+ streaming service. Consequently, Disney has committed to achieving profitability for Disney+ by the conclusion of the next fiscal year, having already enhanced operating income for its direct-to-consumer streaming operations by $1 billion in the current year.
Disney's fiscal year 2023 portrays a promising trajectory for the company. Through recent months, the company has diligently implemented cost-cutting measures, setting it on a path to save more than $5.5 billion. Notably, the Disney Parks, Experiences, and Products segment seems to have rebounded from the revenue setbacks inflicted by the COVID-19 pandemic-related lockdowns. With a cumulative revenue of $24.8 billion over three quarters, it exceeds the pre-pandemic figure of $19.6 billion from 2019 by nearly 30%.
These cost-saving initiatives, coupled with the commitment to attain profitability for Disney+, are poised to fortify the company's capacity to generate free cash flow (FCF). Indeed, Disney's FCF is already demonstrating robust growth, surging to $1.6 billion in fiscal Q3, in stark contrast to the $187 million reported in the same quarter of the previous year. Consequently, the company is contemplating the reinstatement of its dividend, albeit the specific timing remains to be determined.
In light of these encouraging developments, it becomes evident that Disney's current challenges are temporary in nature. Therefore, with the stock currently trading near a 52-week low of $79.75, the lowest price observed in nine years at the time of this writing, it presents an opportune moment to consider investing in Disney shares.
As long as the price is below 90.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 83.42
- Take Profit 1: 81.00
- Take Profit 2: 77.00
Alternative scenario:
If the level of 90.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 90.00
- Take Profit 1: 94.00
- Take Profit 2: 97.00
