No magic for Disney investors

No magic for Disney investors

Netflix shares (NFLX) plunged more than 40% this year, ahead of the release of its first-quarter results after the closing bell on Tuesday. Meanwhile, the actions of disney (SAY) have fallen nearly 15% so far in 2022. That makes Disney one of the worst performers in the Dow Jones, which is down just 4% this year.

Both companies have been plagued by concerns over streaming competition and the uphill battle for subscribers.

Inflation is also a problem. A recent report from the UK showed that consumers were cutting back on their streaming services due to fears over rising prices, and that UK customers were dropping Disney+ at a faster rate than Netflix and from Amazon (AMZN) First video. (Disney also owns Hulu and sports streaming service ESPN+.)

Despite Disney’s massive library of movies and shows thanks to its own branded studio, as well as Marvel, Pixar and Star Wars creator Lucasfilm, investors worry that this abundance of content won’t spur growth enough. streaming subscriptions to compensate for the slowdowns in its traditional distribution. and cable television companies.

“Disney+, Hulu and ESPN+ have the scale and leadership conviction to become a massive global streamer over time,” JPMorgan analyst Philip Cusick said in a report Tuesday. But he added that “it’s not necessarily as good a deal as Disney used to have on TV.”

Traditional media companies like Disney relied much more on lucrative ad sales and cable company affiliate fees to deliver their channels, but the shift to streaming has upended that model. Investors are now more interested in streaming margins and not just the bragging rights that come with a company’s subscriber count.

“The market appears to be overtaking gratifying media companies, as it did in 2020 and 2021, simply for their projections of future streaming subscriber growth,” MoffettNathanson analyst Michael Nathanson said in a report last month. .

“Now it seems investors are looking deeper into the income statement – ​​and also, finally, delving into the cash flow statement – ​​to try to determine the underlying steady-state profitability of the pivot to delivery. Direct-to-Consumer content,” added Nathanson. .

Nathanson lowered his price target on Disney in March from $165 per share to $150 in part due to concerns about declining profit margins.

Florida controversy still a problem for Disney

Disney also came under fire after CEO Bob Chapek initially refused to speak out against Florida’s ‘Don’t Say Gay’ bill, which bars schools from teaching students in kindergarten through third grade l gender identity and sexual orientation.
Following criticism from Disney employees, Chapek ultimately condemned the law. But some Republicans are now threatening Disney with a boycott while many Democrats believe Chapek’s response came too late and lamented for the days of former Disney CEO Bob Iger, who was a more outspoken advocate for the causes. progressive.

Whether or not the Florida controversy has any real impact on Disney+ subscriptions, movie and theme park attendance, and ratings for Disney-owned ABC and ESPN is up for debate.

However, one analyst noted that the “Don’t Say Gay” issue could hurt the company in other ways as well, if more liberal Hollywood celebrities decide not to work with the House of Mouse.

“Most important [Disney] trump is his mark, next is his talent. If the controversy results in the loss of key creative talent, that would be clearly negative,” Loop Capital’s Alan Gould said in a report released earlier this month.

Whatever happens, it’s clear Wall Street isn’t happy with Disney’s performance since Chapek took over from Iger in February 2020.

Disney shares are now hovering near their lowest levels since November 2020. Admittedly, Chapek has been given a rough ride since the start of his tenure coincided with the onset of the Covid-19 pandemic in the United States, an event that led to a dramatic slowdown in tourism and leisure activities such as going to the cinema.

Disney should have a big 2022 at the box office

But some are hoping Disney can turn things around soon.

Michael Morris of Guggenheim Securities wrote in a report late last month that park activity is expected to rebound thanks to new attractions such as “Star Wars: Galaxy’s Edge” and “Avengers Campus”, increased traveler visits foreigners at flagship resorts in Orlando and California and a full reopening of international parks and cruise lines.

And JPMorgan’s Cusick noted Disney’s strong slate of movies this summer and later this year as a positive.

Box office revenues are expected to start rebounding thanks to upcoming releases of sequels to Marvel’s Dr. Strange, Thor and Black Panther, the Pixar film “Lightyear” about the inspiration behind the popular “Toy Story” character. first sequel to the 2009 hit “Avatar” (“Avatar 3” will follow in 2024.)

Disney’s Marvel, along with partner Sony, has already proven that moviegoers will be returning to theaters in droves for big blockbusters. Last year’s “Spider-Man: No Way Home” is the third highest-grossing film ever made in the United States.

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