Walt Disney (DIS 0.16%) is flirting with the double digits again. Shares of the media giant traded as low as $100.53 on Monday, its lowest level of the year. You would have to go to late last year -- Dec. 6, 2016 to be exact -- to find the last time that Disney stock wasn't trading in the triple digits.
Disney shares are trading 16% below their all-time high set two summers ago, a decline that may not seem so brutal until you consider that the family-entertainment leader has called in sick during the past two years of rallying equity prices. The S&P 500 has risen 17% since we hit peak Disney two years ago, framing the disparity between Disney investors and the otherwise buoyant stock market.
There are no guarantees on Wall Street. Stocks have many gears, and sometimes, they shift into reverse. Disney stock seemed like a market darling, so it's worth exploring the reasons why an iconic brand has gone cold in the pocketbooks of investors. Let's also explore why the three fears may be overblown.
Image source: Disney.
1. ESPN has become a four-letter word
Disney's sports network was once seen as the true star of the Capital Cities/ABC acquisition in 1996, but these days, ESPN is a pressure point. Subscriber counts have fallen every year since topping 100 million in 2011, and with programming costs rising for live sports content, it's easy to see why investors see this as the mother of all squeeze plays.
Reality is kinder than the worrywart headlines. Cord-cutting -- something that is stinging all of Disney's cable properties -- is happening at a gradual pace. Disney actually reported a year-over-year increase in affiliate revenue in its latest quarter, as those still on cable packages including ESPN are paying more for the sports network. ESPN has gone through painful recent layoffs to help keep its cost in check, but it should also have leverage in future negotiations with the pro sports leagues.
2. It's becoming a small, small world
Attendance fell at all six of Disney's domestic theme parks last year, according to industry tracker Themed Entertainment Association. New attractions don't appear to be delivering much of a bounce this year, as Disney reported a decline in occupied room nights at its Disneyland and Disney World resorts in its fiscal third quarter.
The good news here is that the segment's top line is still growing, as revenue per capita is climbing nicely. Last year's successful debut of Shanghai Disneyland is also helping. New rides and attractions are coming, highlighted by the 2019 opening of Star Wars Land on both coasts. The lull in turnstile clicks will prove temporary.
3. Studios are fading to black
Disney's studio business was the weakest of its three largest segments in its latest quarter, as revenue and operating profit declined 16% and 17%, respectively. After back-to-back years of dominating the box office, 2017 has seen sluggish.
Disney has this year's top domestic draw in the Beauty and the Beast live action reboot, but it has fallen short of its previous chart toppers. Disney isn't even the studio behind this year's top superhero flick, as Wonder Woman reigns over Marvel releases. Disney's attempt to breathe new life into its Pirates of the Caribbean franchise sputtered.
It also hurts that exhibitors are struggling. These are tough times for multiplex operators.
Things should get better. The next Star Wars film is now less than four months away. Disney is also taking big bets on digital delivery, with plans to roll out a dedicated Disney-branded platform for its growing catalog of content come 2019.
Disney's out of favor right now, and the stock price reflects that. It may very well buckle below $100 for the first time this year in the coming days. It's not running on all cylinders right now, but there are plans in place to breathe new life across all of its segments. Disney falling into the double digits will sound like an alarm when it happens, but that ding you're hearing can also be a dinner bell.
