Walt Disney (NYSE: DIS) is a company that needs no introduction. I’m sure everyone has seen at least one of its films, or even been to a Disney theme park.
But the share price crashed last week from a high of $179 to below $160. That’s an over 10% plunge in value.
Let’s take a look at what caused the shares to crash, and if I should buy on this weakness.
Quarterly results
It was the release of Disney’s fourth-quarter earnings results on Wednesday evening that caused the share price to fall. And the results weren’t great.
In fact, the results missed analysts’ estimates across the board. Revenue came in at $18.5bn, missing expectations of $18.8bn according to Refinitiv. And earnings per share (EPS) were 37 cents, considerably missing what had been expected to be EPS of 51 cents.
Content sales and licensing proved to be a drag on operating performance, leading to a loss of $65m during the quarter. The pandemic is still impacting the business as production delays have limited Disney’s film content.
It wasn’t all bad though. Disney’s theme parks were all open again during the fiscal fourth quarter, and its cruise ship began sailing. Attendance has rebounded recently too, after the disruption caused by the pandemic. However, a total cost of $1bn was incurred over the full year to meet government safety standards across its parks.
But it’s the streaming service, Disney+, that’s making headlines.
Disney vs. Netflix
It’s a case of streaming wars right now, and there are some big players battling for subscriptions. Disney has a rich history of film content and popular characters, so it’s easy to see why the company launched a streaming service. Netflix, though, has a big head start, and has been building its own content empire.
Unfortunately for Disney, new subscriptions in the fourth quarter came in at 2.1m. This was a big miss on estimates of 10.2m, according to FactSet data. What’s worse is that Netflix added more than double this number of subscribers in roughly the same period.
As it stands there are 214m global subscribers for Netflix, 118m subscribers for Disney+. Netflix is winning the streaming wars, for now.
Final thoughts
I have no doubt that this is an excellent business. It’s catalogue of characters includes traditional Disney films, Marvel and Pixar. This content is the envy of most other competitors.
But the company has had a really difficult time due to the pandemic. Its parks were shut down, and international travel restrictions are prolonging a return to normal attendance levels. Its film studios are still suffering from Covid-related disruptions too.
Revenue for the full year ending October 2021 was $67.6bn, and still under the revenue generated in the 12 months prior to Covid of $69.6bn. The shares are currently valued on a price-to-earnings ratio of 37 for next year, which to me says that a full recovery is already priced in.
I’m going to keep Disney on my watchlist for now.