In trying to figure out where Disney (NYSE:DIS) stock is going, it’s worthwhile to consider where it’s been.
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From 2015 to 2019, despite rising broad markets, DIS stock was rangebound. It hovered mostly around its current price a few dollars above $100.
There were several reasons why Disney lagged the market. The biggest was the company’s media operations, including ESPN in particular. Investors feared that “cord-cutting” would pressure profits from that business — keeping a lid on Disney earnings for years to come.
Disney+, the company’s streaming service, changed the perception of the stock. It was Disney’s response to the cord-cutting trend. As a result, DIS stock soared to all-time highs.
But the story has shifted again in 2020. The novel coronavirus has shuttered Disney parks, hit its theatrical business, and pressured ad revenues in the media business.
In less than three years, DIS stock has had three very different narratives. But investors should remember that all three still apply to the stock — even the bullish story that propelled shares to all-time highs less than six months ago.
Cord-Cutting, Disney+, and Parks Closures
In fiscal 2015, the company’s Cable Networks segment generated 46% of the company’s total profit. Nearly all of that came from ESPN. But “cord-cutting” represented a real threat to those profits. ESPN generates nearly $10 per month per subscriber, and those subscriber numbers clearly had peaked.
But last year, DIS stock finally broke out. In April, the company announced the launch date and pricing for its Disney+ streaming service. The company soared on the news.
The service added another boost to shares in November. Disney announced that Disney+ garnered 10 million subscribers in its first day, and shares moved to all-time highs.
In 2020, however, the focus mostly has moved away from Disney+. Investors are worried about the parks and cruise businesses, which are going to post short-term losses. The old concerns aren’t gone, either.
Pressure on ESPN is going to accelerate with live sports dormant, while ABC will see ad revenues decline as companies watch their budgets. Trading in other media stocks like ViacomCBS (NASDAQ:VIACA, NASDAQ:VIACB) and Discovery Communications (NASDAQ:DISCA) shows how concerned investors are about cable networks, in particular.
Again, there have been three broad narratives surrounding Disney in recent years. All have some truth. But the 31% decline in DIS stock since December suggests investors are leaving one of those narratives out.
Can Disney+ Save DIS Stock?
Throughout trading this year — no doubt the wildest in my 20 years of investing — I’ve advised investors to take the long view. That advice applies to DIS stock as well.
To be sure, Disney profits are going to take a short-term hit. I estimated last month that something like $11 billion in annual profit was at risk. A short-term recession could extend the impact into fiscal 2021.
But Disney has lost almost $70 billion in market value so far this year. It’s difficult to argue that the decline is supported by short-term profit pressures — even if those pressures extend longer than investors realize.
Meanwhile, what essentially is a worldwide quarantine likely is a boost to Disney+. After all, look at Netflix (NASDAQ:NFLX). That company just posted blowout subscriber numbers in its first quarter. Before and after that report, investors have bid up NFLX stock as a “pandemic play.”
In fact, Netflix has added over $40 billion in market value so far this year. And it’s difficult to see how the same trend boosting Netflix won’t help Disney+.
Both companies should add extra subscribers earlier. They’re taking up more oxygen in the streaming world ahead of launches from AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA). Disney’s ownership of Hulu gives it another angle to play, and another way to benefit from faster cord-cutting.
The Long View
The impacts on the media, parks, and cruise businesses are significant. But they’re not all that matter. Disney+ now has over 50 million subscribers.
That subscriber base alone doesn’t necessarily mean that DIS stock shouldn’t have declined at all. But combined with the rally in Netflix, it does suggest that investors aren’t taking the long view. They’re worried about the effect of the novel coronavirus on results in 2020 and 2021.
Those worries are legitimate. But investors should be considering the potential of Disney+ in 2023 and beyond. Heading into 2020, it looked like streaming was going to be a two-horse race between Netflix and Disney. With the transition to streaming accelerating, that still seems to be the case. That’s good news for DIS stock — good news investors don’t seem to be considering at the moment.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
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