It was generally a good year for the 30 blue chips resident in the Dow Jones Industrial Average. A healthy 22 of 30 Dow stocks are nearing the end of the year with positive returns through Wednesday's close.
Adjusted for dividends, there's just one Dow component with a double-digit decline in 2021. Who's the bleeder of the band? M-I-C, K-E-Y...you know the rest. And yes, it's Walt Disney (DIS 0.18%). Disney stock is down 14% in 2021, double the slide of the Dow's second-biggest decliner. Things could be worse than a low-teens drop this year, but the entertainment giant has clearly disappointed investors.
Can this year's biggest loser among the Dow 30 bounce back to be the biggest winner in 2022? Let's break down what it would take for the mother of all reversals at the House of Mouse.
Image source: Disney.
This is the way
We can reverse-engineer the 2021 slide in Disney stock to see what it would take to make things right. The biggest culprit is naturally the slowdown in growth at its Disney+ streaming service. That may have 118.1 million homes worldwide on its platform after just two years of availability, but it's fallen short of Wall Street expectations for net additions in two of the last three quarters.
Disney+ played a starring role in the media giant's healthy gains in 2020. It's only natural to see some of that air being let out of the Mickey Mouse-shaped balloon, with growth slowing to the point where the platform gained just 2.1 million net subscribers in its latest quarter.
Picking up the pace on net additions would help investor sentiment in 2022, but the cherry on top would be if accelerating growth gets paired up with an increase in average revenue per user (ARPU). Despite a rate hike in the U.S. and other markets earlier this year, Disney is seeing ARPU drop as a result of its expansion into markets where it has to charge less. There's a good chance that the dynamics stabilize, and we see the average that Disney is collecting per user rise with a pickup in the platform's popularity.
But that's not the only lever that can send Disney higher in 2022. If the current COVID-19 surge subsides soon, we could see a big rebound for its movie studios, theme parks, and cruise ships. These businesses were already making headway as the 2021 calendar year played out, but the new year begins with dark clouds on all three fronts.
The economy will also naturally have to hold up through the next 12 months. It's not just the segments mentioned above as obvious plays on buoyant consumer sentiment. Disney's media networks rely in part on advertisers, and the heartier the economy, the more marketers are willing to pay for leads.
Things don't have to go perfectly for Disney to come out on top; it's more than the biggest Dow sinker in 2021. Business actually improved for Disney in fiscal 2021: Revenue inched higher, and the company returned to profitability. In short, the fundamentals got better as the stock got cheaper.
The entertainment stock bellwether doesn't have to fire on all cylinders to come out on top in 2022. It just needs to take small steps in the right direction, and let market sentiment carry it the rest of the way. Your move, Mickey Mouse.
