Walt Disney Company (NYSE 🙂 shareholders may have little reason to be happy after seeing the company's latest report on August 6. It has not given them what they wanted: the continuation of the series of profits that have pushed his stock to a record high this year.
Instead, the House of Mouse shares took their worst beating in nearly four years after missing profit forecasts in a quarter that opened the most anticipated amusement park attraction in the company's history. The shares fell nearly 5% on August 7, although they reclaimed some of those losses yesterday to end up at $ 137.89.
Profit in the company's domestic resorts fell in the quarter following the opening of Star Wars: Galaxy's Edge at the Disneyland resort in Anaheim, California, failed to attract large crowds, dragging the segment down . The disappointment was further exacerbated by the poor performance of the company's film division.
Despite the releases of "Avengers: Endgame", the most profitable film of all time, as well as "Aladdin" and "Toy Story 4", that division also fell short as "Dark Phoenix", a Marvel film inherited in the acquisition of Fox assets of $ 71 billion flopped and forced the company to write off.
From a technical point of view, the setback in a quarter should not change much for Disney: the company has shown a strong profit momentum last year in which CEO Bob Iger worked fairly successfully on his reversal plan to stimulate growth. Even after the deep dive on August 7, the Disney shares have risen almost 26% this year, compared to a 16% expansion for the.
Disney's Ambitious Growth
However, that is worrying for investors, as Disney loses its momentum of profit when it enters one of the most ambitious growth plans of its recent history. The company invests heavily to win back subscribers who decamped to streaming providers such as Netflix (NASDAQ: NASDAQ :).
Disney had previously warned that 2019 would mark a difficult fiscal year because the company is going through an internal transition after acquiring most of 21st Century Fox, even while the program is developing for its flagship Disney + service scheduled for November 12.
With its win report, Disney announced it will cost a new bundle of streaming services at a surprisingly low $ 12.99 per month, with a package that includes family programming, live sports and an extensive library of TV shows. The entertainment giant has announced that the combined pricing for Disney +, ESPN + and Hulu will represent nearly 30% off their individual prices.
But all this means higher costs and lower profitability if the traditional Disney companies are not there to fill that gap quickly. In the last quarter, spending on films and TV shows for new online services resulted in a loss of $ 553 million in the direct-to-consumer division of Disney.
That figure could go up to $ 900 million in the current quarter, said Christine McCarthy, Disney's financial director, during the profit call. The service is likely to have between 60 million and 90 million subscribers by the end of fiscal year 2024, the year the company expects to achieve profitability in this segment.
Despite setbacks in the third quarter, we do not think that Disney shares have lost their appeal. It was no secret that 2019 would be a transitional year for Disney, as the company took Fox assets on board and invested in the three direct-to-consumer products.
We find a powerful brand in Disney with a lot of growth momentum. It has competitively priced its streaming product, making it difficult for consumers to ignore its Disney + services, with rich content and lots of variety. For this reason, this week's pullback in Disney's stock creates the ideal access point for those on the sidelines.