Source: PaxForex Premium Analytics Portal, Fundamental Insight
Walt Disney released updated financial results last Wednesday afternoon, but all it took was a weak net gain on the Disney+ platform for the stock to fall. Disney stock dropped despite encouraging results from a sharp turnaround at its iconic theme parks.
The 26 percent revenue growth in the fiscal fourth quarter was enough to put the entire 2021 fiscal year in the black. It's a modest 3 percent growth, but it sets the stage for a healthy recovery, with analysts predicting revenue growth in the tens of percent range for fiscal 2022. Investors were expecting a little more, but that's not the deciding factor for the stock, which is already trading down year-to-date. Disney's adjusted earnings of $0.37 per share also fell short of Wall Street targets, but the turnaround with so many moving parts and rising costs will be uneven.
Disney technically missed on both ends of the earnings report, but that's not the main thing that drove the House of Mickey stock down. The focus of the negative is on the plus side, as in Disney+.
There's no denying it was a weak performance for the premium streaming service. Disney+ entered its fourth fiscal quarter with 116 million subscribers, up 12.4 million viewers in its third fiscal quarter. The slowdown was inevitable, and CEO Bob Chapek even warned about it in late September. With less than two weeks left in the fourth fiscal quarter, Chapek said net growth for that period would be "a small number of millions of subscribers" for Disney+.
The minimum figure based on this metric - with "millions" being a plural - would be 2 million. 2.1 million net Disney subscribers to reach 118.1 million is essentially a worst-case scenario, which is why analysts thought the media giant would have more than 120 million Disney+ subscribers at this point.
Why are we so focused on Disney+? That, of course, is exactly what's changing the game. But have you really looked closely at Disney+ compared to the whole business? For starters, Disney has said it doesn't expect Disney+ to be profitable until at least 2024. By then, we'll be knee-deep in Avatar sequels!
More importantly, Disney+ accounts for less than 8% of total current revenue. Multiply the number of subscribers by three months at a disappointing average monthly revenue of $4.12 per subscriber, and you get less than $1.5 billion in quarterly revenue for media stocks that just earned $18.5 billion. Do you know which streaming service Disney exceeded $1.5 billion in revenue? Hulu. Add to that the Hulu-branded live streaming service - another $1 billion in the quarter - and you've got over $2.5 billion, or almost 14% of revenue.
It's pretty natural to be thrilled that Disney is a streaming service provider. Disney+, ESPN+, and Hulu have all grown 20% or more over the past year. But Disney+ is just one of the levers Wall Street is fixated on, while there is a more interesting story to tell about the valuation of all the moving parts of this dynamic and massive media empire.
As long as the price is below 169.50, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 159.21
- Take Profit 1: 150.20
- Take Profit 2: 145.90
Alternative scenario:
If the level of 169.50 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 169.50
- Take Profit 1: 177.00
- Take Profit 2: 181.60
