When a company executes a stock split, it doesn't fundamentally change anything for the business or for investors in that business -- at least not in the practical sense. Some companies have traditionally announced splits to attract retail investors that might feel a high share price is out of reach for the small amounts they are able to invest.
But many brokerages now allow trading in fractional shares, which makes that situation moot, as investors can trade in any small dollar amount, regardless of how high share prices go. However, there can still be a psychological effect from stock split announcements. That might be something Walt Disney (DIS -0.33%) management should consider to help get its message to investors.
Image source: Walt Disney.
The pandemic pivot
Like many companies, Disney was forced to adopt a strategy to deal with the impacts of the pandemic. Many of its businesses were effectively shut down, and normalcy hasn't yet returned for its theme parks, cruise line, and entertainment segments. But management pivoted to focus on the streaming business it was already working to build.
Disney shares soared in response to the early results after subscriber growth exceeded many investors' expectations. But as the chart below shows, the trajectory of total direct-to-consumer (DTC) streaming and Disney+ subscriber growth slowed during 2021. As a result of that and the recent market slide, Disney shares have dropped 32% from March 2021 highs.
Data source: Walt Disney financial reports. Chart by author.
Communicating with investors
It's always important for companies to keep shareholders and the investment community informed. Investors were somewhat surprised by the fiscal 2021 fourth-quarter report when Disney shared that it only added 2.1 million additional paid subscribers in the three months ended Oct. 2, 2021.
In its most recent earnings conference call with investors on Nov. 10, CEO Bob Chapek reiterated that the company believes it remains on track with its streaming strategy, saying, "We're confident we are on the right trajectory to achieve the guidance that we provided at last year's Investors Day, reaching between 230 million and 260 million paid Disney+ subscribers globally by the end of fiscal year 2024, and with Disney+ achieving profitability that same year."
Stating that view on a conference call is one way of communicating it. But many investors look at stock splits as a sign that management has confidence in the direction of the company and its business. After all, they don't expect management to enact a share split with the expectation for the stock price to move lower. Disney could consider reinforcing its stated confidence with plans to split the stock.
Figment buckets of popcorn have become a collector's item. Image source: Walt Disney.
Not just streaming
Investors seem to be focused on Disney's streaming services, led by Disney+, while the balance of the business appears to have plenty of upside that is being dismissed. Visits to theme parks will resume for many at some point, and there still looks to be plenty of interest from Disney fans.
When Disney opened its 2022 EPCOT International Festival of the Arts recently, the company's blog showed long lines of people waiting to purchase $25 buckets of popcorn containers based on the EPCOT character Figment, which is from the Journey Into Imagination attraction. Those buckets are already turning into collector's items, with sellers listing them for $200 on eBay.
That's just one small example of the reach of Disney's brand. As its theme parks, movies, and sports media businesses continue to recover, it seems the company could give investors more good news in the near future. While a stock split doesn't reflect real business progress, one could come for Disney shares if management wants to project confidence in that future business.
