When it comes to their recent, highly publicized issues, I want to root for Disney (DIS), I really do. I just find it easier to root for Mickey Mouse, Donald Duck, and Snow White than a cynical politician using fear and bigotry to advance their national profile. That doesn’t mean, however, that I own the stock. I sold the last of my DIS well over a year ago; not because of their support for diversity, equity, and inclusion in the workplace, but because they seemed to be a company that had lost its way in a business sense.
Yesterday’s big announcement from the company seems on the surface to be a good thing in that regard, but it is really just more of the same thing that has caused DIS to drop around 60% from its early 2021 high.
In case you missed it, Disney announced that they will be doubling their investment in their Parks, Experiences, and Products division over the next decade, bringing it to around $60 billion. That shift of focus hints at what many have suspected for a while: that Disney is looking to cut its losses in the broadcasting and streaming game and return to its roots as a filmmaker and theme park operator.
It has long been suggested that they are seeking a buyer for ESPN, once the flagship of their operation and until quite recently a massive source of revenue and growth. In reality, the indications are that they are open to offers for the network rather than actively pursuing a deal, but rumors persist that they are prepared to move on should somebody come up with the right price. Yesterday’s announcement and some recent high-profile cuts at the “worldwide leader” imply that they are done with the increasingly competitive -- and high cost -- sports business.
As I said, that will be seen as a welcome development by many, but the problem is one of timing. Traders are fond of stating the obvious, that one should always aim to buy low and sell high, and that strategy applies to running a business as well as trading stocks or bonds. Disney seems to have been stuck in a cycle of doing the opposite. They got involved in streaming when it was hot and are looking to get out when it is not.
That leaves them investing heavily in experiences which fits the current zeitgeist, but is it Disney once again buying high? Theme parks and cruise ships have been booming post-covid, but the rapid growth makes it just that: a boom. And those are all too often followed by a bust. Sure, a full on bust looks unlikely in this case given the fact that Disney theme parks will never really lose their allure for some people, but do theme parks and cruises offer the kind of double digit-plus revenue growth that investors are seeking?
Probably not, at least not without massive investment that would leave Disney vulnerable should there be another pandemic-like event. Again, another shutdown is unlikely you might think, but it would only take one serious viral outbreak on a cruise ship of any kind to make people rethink their love of massed-up bunches of humanity and shy away from packing themselves into parks and floating incubators.
Until quite recently, my contrarian trading style made me see the sustained decline in DIS as a potential opportunity. I mean, Mickey isn’t going away any time soon, and maybe the drop is a cyclical thing and the recovery will be just as relentless as has been the decline. However, when you step back and look at decisions made by the board and management over the last few years, Disney looks like a company that has been chasing trends rather than setting them, and yesterday’s announcement does nothing to alter that perception.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.