Source: PaxForex Premium Analytics Portal, Fundamental Insight
Walt Disney is currently navigating a challenging period, which is hardly a hidden fact.
Over the past couple of years, the prominent entertainment company has witnessed a decline in its stock value, primarily due to a slowdown in revenue growth, a gradual recovery in profits post the pandemic, and a surprising return of CEO Bob Iger. This unexpected leadership change indicated a potential misdirection under former CEO Bob Chapek.
Simultaneously, the media industry confronts several difficulties, notably the impact of cord-cutting on traditional TV profits. Furthermore, numerous players in the streaming sector, Disney included, are grappling with losses in the streaming segment.
Disney's most recent financial report did little to instill confidence among investors about the company's resurgence. The quarter's revenue inched up by a mere 4% to reach $22.3 billion, marking its weakest growth since the decline over two years ago during the pandemic.
Operating income across segments remained stagnant at $3.56 billion for the quarter, and adjusted earnings per share dropped from $1.09 to $1.03.
Although Disney's stock initially dipped following the earnings report, it rebounded after the earnings call, during which the company revealed a fresh series of price hikes for Disney+. This announcement comes merely eight months after the ad-free version's price was raised from $7.99/month to $10.99/month.
Disney has announced plans to raise the subscription price for Disney+ from $10.99/month to $13.99/month, and it will also implement a price increase for Hulu, raising it from $14.99/month to $17.99/month.
The initial price adjustment for Disney+ encountered minimal resistance. The number of North American Disney+ subscribers declined by 300,000 to 46 million. However, the average amount paid, which considers the Disney streaming bundle incorporating Hulu and ESPN+, saw a more than 2% increase, reaching $7.31. This strategic move seems to be a favorable decision for Disney.
During the recent earnings call, CEO Bob Iger responded to inquiries about the previous price hike in December by stating, "We really didn't see a significant churn or loss of subs because of that." Even with the new price of $13.99/month, Disney+ remains competitively priced compared to rival services like Netflix, Warner Bros. Discovery's MAX, and Hulu.
It is now evident that Disney undervalued its flagship streaming service upon its 2019 launch. In the latest third-quarter earnings report, the streaming segment's loss decreased from $1.06 billion to $512 million, marking a remarkable improvement of almost $1 billion compared to the previous low three quarters ago.
The price increase is not as risky as it might seem. Disney will maintain the price of its ad-supported tier at a steady $7.99/month. This strategy allows subscribers to switch to the ad-based tier if they prefer not to pay the higher fee.
To date, around 3.3 million subscribers have opted for the ad-supported version, and approximately 40% of new subscribers are selecting the ad-supported option. Iger also mentioned that the company's objective is to transition more subscribers to the ad tier. This direction aligns well with Disney's extensive experience as an ad-based network, considering that Hulu's ad-supported tier generates roughly the same revenue as the ad-free tier.
As long as the price is below 90.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 86.80
- Take Profit 1: 85.00
- Take Profit 2: 81.00
Alternative scenario:
If the 90.00 level 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
