What happened
Week to date, shares of Walt Disney (DIS 0.18%) were down 5.5% as of 11:57 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence. The stock dipped following the company's fiscal fourth-quarter financial results that showed losses from Disney+ pressuring profits.
Disney's stock has fallen 39% year to date. Is it a buy?
So what
The sell-off appears to be excessive for a few reasons. While the direct-to-consumer business posted a $1.4 billion operating loss, total revenue across Disney's empire increased by 23% over the year-ago quarter. Most importantly, Disney produced positive free cash flow of $1.3 billion.
Unlike some streaming services, Disney can afford to absorb streaming losses, given the profits from the theme parks and media networks (e.g., ABC and ESPN). During the earnings call, CEO Bob Chapek said they are now at "peak" operating losses for streaming, which is expected to decline going forward.
Now what
Disney+ now has 164 million subscribers worldwide, so price increases will come into play. Disney+ is still cheaper than Netflix without ads. The launch of the ad-supported plan is also a catalyst for more growth, although management doesn't expect advertising to drive meaningful financial performance until later next year.
Management also said that Disney+ should only add a slight increase in subscribers during the holiday quarter, given the year-ago signups during Disney+ Day in 2021.
Those are the key negatives that are weighing on the stock. Overall, market traders are probably placing too much emphasis on short-term numbers and overlooking the tremendous brand value of Disney, which has led to a quick recovery for the parks coming out of the pandemic and a large base of subscribers in streaming. All that said, Disney still looks like a solid long-term investment.
