For investors in Walt Disney Co. (NYSE 🙂 brought mixed signals over the past week. While the economic reopening and relaxation of COVID-19 restrictions may ease visitors to return to the abandoned parks and theaters, the streaming service – which was the company's rescue during lockdowns – is losing some momentum after blistering growth over the past year .
The entertainment giant reported 103.6 million Disney + customers at the end of the previous quarter last week, falling short of the 110.3 million forecast by analysts. That disappointing number accelerated the decline of its stocks, which are now down about 10% over the past month. They closed at $ 170.08 a share on Monday.
The rapid growth of Disney + supported its inventory during the pandemic when its old businesses lost billions of dollars on stay-at-home orders. The service reached more than 100 million users in just 16 months after its launch in the US in November 2019. In the following months, the service was rolled out to Canada, Australia, Latin America and Singapore.
As subscription levels decline, investors are sidelining for fear of further declines in the stock price. The current downturn is, in our opinion, a buying opportunity for long-term investors looking for a good entry point.
Despite a weaker headline figure, there are many positive catalysts that could improve Disney's financial position this year, bolster the stock price and help the entertainment giant resume its suspended dividend.
Strong Pent-Up Demand
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One of the positives for DIS is that last week's decision by the US government to relax masking guidelines will speed up the recovery in its traditional revenue-generating units, including theme parks, movie theaters and cruises, where demand is strong after a year of travel restrictions.
Disney parks have now reopened everywhere except Paris, and the company is returning to exclusive theatrical releases – pre-pandemic power. "Free Guy" and "Shang-Chi and the Legend of the Ten Rings" will both be in theaters for 45 days before going online, Disney announced last week.
Some leading Wall Street analysts remain optimistic about Disney after the past week. According to the ratings of 19 analysts, Disney stock has 23% upside potential from its current level, with a 12-month consensus target of $ 209.06, according to TipRanks.
Steven Cahall, senior equity analyst at Wells Fargo, said in a note:
“In addition to the lack of consensus on the quarterly Disney + subs, we expect the stocks to pull back and hang around for a while. However, we consider this an excellent opportunity to accumulate as this is a long-distance story, and neither the overall addressable market, nor the strategy at all, is affected. We are weak point buyers and see a two-year path to $ 250. "
Bullish Disney stock analysts believe that the shortage of streaming subscribers is temporary and that the company's overall appeal to investment remains strong, especially when the old companies come back.
Disney said last week that the number of subscriptions picked up in the latter part of the quarter and that it is almost back to full production for film and TV. More Marvel and Star Wars shows are on the way, building on the success of "WandaVision", "The Mandalorian" and "The Falcon and the Winter Soldier".
With that, the worldwide expansion of Disney + remains on track. The service will launch in Malaysia on June 1 and Thailand on June 30. A Star + Latin American service is slated for August 31, suggesting the company still has plenty of room to capitalize on its streaming growth.
Morgan Stanley, who has an "overweight" rating on Disney with a target price of $ 210, said in a note:
“All signs point to a strong reopening in the cyclical and COVID-related parts of Disney & # 39; s businesses, led by parks. As the pandemic abates over time, sport is returning to its normal cadence and consumers returning back to theaters – all Disney-related businesses should recover quickly and contribute to significant profit growth. "
Bottom Line
Disney stock is under pressure as streaming business growth shows signs of slowing down following massive expansion. But that withdrawal offers a buying opportunity when its legacy businesses open and the streaming service still has plenty of growth potential. These positive fundamentals point to a strong stock price going forward.
