Disney’s stock has been facing substantial challenges in recent years, leading to a significant decline in investor sentiment. According to MoffettNathanson analyst Michael Nathanson, this sentiment has hit “an all-time low.”
The decline in Disney’s stock is apparent when compared to the S&P 500’s impressive growth. Over the past five years, Disney shares (DIS) have fallen by 21%, while the S&P 500 (SPX) has surged by 84%. Although Disney’s stock experienced a modest increase of 4% in 2023, it pales in comparison to the S&P 500’s leap of 24%.
One of the contributing factors to Disney’s troubled stock performance is its complex nature. Particularly concerning its media side, the company is taking steps to transition its flagship service, ESPN, into the streaming world. Additionally, Disney awaits final approval regarding the acquisition of Comcast Corp.’s (CMCSA) one-third stake in Hulu, further emphasizing the multifaceted nature of their story.
An important aspect that requires addressal, according to Nathanson’s analysis, is the need for investors to regain confidence in Disney’s long-term margin potential, particularly in the rapidly growing streaming industry. Nathanson argues that out of all the pressing matters at hand, the topmost priority must be clarifying Disney’s future in direct-to-consumer (DTC) services.
In conclusion, amidst ongoing challenges and uncertainties, it becomes crucial for Disney to secure a stable and prosperous path in the ever-evolving streaming landscape.
Disney’s Streaming Business: A Closer Look
As ESPN continues to garner attention, industry analyst Nathanson delves into Disney’s streaming business, offering a comprehensive analysis. By excluding assumptions for the Hulu Live TV segment, Nathanson estimates that Disney is losing a whopping $2.4 billion annually. Despite this substantial loss, the business still generates an impressive $15 billion in revenue. A stark contrast is drawn when comparing Netflix’s performance at a similar revenue level in 2018, where the company boasted $1.6 billion in profits.
Concerns surrounding the overall margin story in streaming are hindering Disney’s stock performance. Although reaching a break-even point by the end of FY 2024 appears promising, Nathanson emphasizes the need to ascertain the long-term margin potential of these assets. Currently, his projections indicate a mere 5% margin by 2025, but the existence of significant ambiguity makes it impossible for both the market and himself to assert its accuracy.
The lingering question is whether Disney’s management possesses the clarity sought by Wall Street, coupled with their willingness to share their insights. Until then, uncertainty prevails.