There's never a dull moment when it comes to Walt Disney (DIS -0.45%). On Wednesday the media giant was making waves after boosting its dividend rate and releasing a buzz-worthy trailer for next year's Avengers: Infinity War movie. Unfortunately for investors, the stock itself hasn't made as splashy a move. Disney stock is trading barely higher in 2017, with its year-to-date gain of less than 2% losing sorely to the buoyant market.
Disney stock was also marching in place last year, trading essentially flat for all of 2016 while the market inched higher. The trend suggests that next year will bring more of the same, but let's not assume back-to-back years of stagnancy are the new normal at Disney. It's been a tug-of-war, as strength at Disney's iconic theme parks and expanding market multiples have been held back by the well-publicized challenges at ESPN and a rough 2017 at the box office relative to previous years.
Another ho-hum year seems unlikely in 2018. There are a fair number of headwinds and tailwinds that will battle it out to give the stock direction, but that perfect balance where factors cancel each other out resulting in flat annual moves -- like we saw in 2016 and 2017 -- is unlikely to reappear next year.
Image source: Disney.
Let it go
Disney's fiscal 2017 ended two months ago, and it wasn't pretty. Revenue and net income slipped 1% and 4%, respectively. You have to go back to fiscal 2009 to find the last time that the Mickey Mouse company staged a top-line retreat. This is actually just the third time in the past 25 years -- according to data from S&P Global Market Intelligence -- that Disney's revenue has declined in a fiscal year.
The culprits are everywhere. Disney's media networks segment posted a modest 1% decline in revenue in fiscal 2017 as cable subscribers paying more for access wasn't enough to overcome a shrinking overall rate of viewers and lower ad rates. Disney's studio experienced an 11% slide as its slate of movies wasn't as magnetic as its 2015 and 2016 blockbuster offerings. Consumer products also staged a modest retreat.
Only the parks and resorts division turned in a positive showing at either end of the income statement, with revenue and segment operating income rising 8% and 14%, respectively, in fiscal 2017. Growth should continue on that front. The real treat should come in 2019 when the 14-acre Star Wars: Galaxy's Edge expansion opens at Disney parks on both coasts, but Disney should still be able to drum up healthy turnstile clicks with next summer's Toy Story Land opening at Disney's Hollywood Studios in Florida.
Disney's studio should bounce back nicely in fiscal 2018 with Star Wars: The Last Jedi and Avengers: Infinity War coming to a multiplex near you in the fiscal first and third quarter, respectively. A rebound in consumer products will inevitably follow. The picture gets murkier when we asses media networks, which just happens to be Disney's largest segment. Disney will roll out its first over-the-top ESPN streaming service in the coming months, and that platform's success will go a long way in soothing investors fretting about the negative trends in linear-television consumption.
Analysts see revenue and earnings per share rising 6% and 9%, respectively, in fiscal 2018. The catalysts are clearly in place for all but Disney's media networks segment, and even there it's easy to see how a hit show, a warm market reception for ESPN's new stand-alone offering, or possibly even another blockbuster content acquisition can turn sentiment around. Disney is setting itself up for improvement in 2018 -- something that obviously didn't happen in 2017 -- and that's a strong step in the right direction.
