Source: PaxForex Premium Analytics Portal, Fundamental Insight
The year 2023 has presented Walt Disney Company with a series of challenges, including strikes by both writers and actors, a contractual dispute with Charter Communications, and struggles in its streaming business. Notably, these hurdles coincide with the celebration of the company's 100th birthday, making it a noteworthy period in Disney's history.
Reflecting the tumultuous year, Disney's stock hit a 52-week low of $78.73 on October 4, marking a nine-year low. Despite a subsequent recovery driven by the resolution of strikes and positive results for the 2023 fiscal year, which ended on September 30, Disney's stock is still significantly below its 52-week high of $118.18.
This prompts the question: Does the current depressed share price present a buying opportunity, or are there still reasons to exercise caution with Disney stock? To answer this, let's delve into a more detailed examination of the company.
One crucial aspect of Disney's business is its streaming operations, which have become increasingly vital as traditional linear TV networks, such as ABC, experience declines in revenue due to the growing popularity of streaming services. In the fourth quarter of the fiscal year, Disney's linear networks segment witnessed a drop in revenue to $2.6 billion from $2.9 billion the previous year.
The direct-to-consumer (DTC) division, encompassing Disney's streaming business, is a key focus area. Despite the DTC segment registering an operating loss of $420 million in Q4, there are positive signs. DTC revenue increased by 12%, reaching $5.0 billion, and Disney+ streaming service exhibited strong international subscriber growth, reaching 66.1 million subscriptions.
To strengthen its streaming business further, Disney plans to acquire Comcast's 33% stake in Hulu. The integration of Disney+ and Hulu into a unified app launching in December aims to enhance the consumer experience, reduce costs, and improve margins for Disney.
Disney's diversified entertainment empire extends to assets like the ESPN sports network, considered a significant contributor to its future success. In Q4, the sports segment's revenue remained flat year over year, but its operating income grew by 14% to $981 million.
Another pillar of strength for Disney is its "experiences" segment, covering theme parks, retail stores, and cruise ships. This division experienced robust growth, with Q4 revenue rising by 13% year over year to $8.2 billion. Impressively, the experiences division is Disney's most profitable business unit, with Q4 operating income reaching $1.8 billion, marking a 31% increase year over year.
The company's free cash flow (FCF) is on an upward trajectory, signaling financial recovery. In Q4, FCF saw over 100% growth compared to the prior year, reaching $3.4 billion. Exiting fiscal 2023 with $4.9 billion in FCF, Disney anticipates fiscal 2024 FCF to reach "levels last seen pre-pandemic." This positive trend has prompted plans to reinstate the dividend by the end of the next month.
Despite a challenging centennial year, Disney appears to be bouncing back, with CEO Bob Iger emphasizing a shift from a period of fixing to a new era of building. The increasing FCF, a strengthening streaming business, a focus on sports, and growth in the experiences division suggest a promising future for Disney. With the stock price well below its 52-week high, now could be an opportune time to consider acquiring shares.
As long as the price is above 86.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 90.61
- Take Profit 1: 92.00
- Take Profit 2: 96.00
Alternative scenario:
If the level of 86.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 86.00
- Take Profit 1: 83.00
- Take Profit 2: 80.00
