The Walt Disney Company (DIS -1.01%) released what can be described as a mixed fourth-quarter earnings report on Tuesday that tells a story of both growth and struggles. The stock initially jumped after the report, but it has since sagged. Disney stock is now down 48% over the past year. Is now a good time to buy?
Making magic again
Disney continues to make strides in propelling itself forward after the pandemic shook up its business. Revenue increased 9% in Q4 (ended Oct. 1) to $20.5 billion, but that was slightly below Wall Street's expectations. Adjusted earnings per share of $0.30 decreased from $0.37 last year and were well below Wall Street's expectations of $0.56. That was enough to send the stock plummeting. But there were some other very acute growth signs.
Parks performance was phenomenal in Q4. Sales increased 36%, and operating income increased more than 100%. CEO Bob Chapek said that demand is outpacing capacity at parks, which is a strong signal of continued strength in this segment. This was despite the Shanghai park's closure for part of the quarter.
Disney continues to invest in new rides and experiences, and these are leading to high demand. It has seen a "ramp-up in bookings" for its new Wish cruise line, for example.
Winning the streaming wars
The streaming segment demonstrated tremendous growth in Q4. There were 14.6 million new subscriptions, including 12.1 million for the Disney+ premium network. That brings the total to more than 235 million, with 164 million for Disney+. That's well on its way to the projected 230 million to 260 million Disney+ subscribers by 2024. Moreover, total subscriptions overtook Netflix (NFLX 1.74%), which reported 223.1 million subscribers at the end of the third quarter.
Revenue for the direct-to-consumer (DTC) segment increased 8% over last year. However, DTC operating losses ballooned to nearly $1.5 billion in Q4 from $630 million last year. Management said that was due to increased costs related to Disney+, and that losses should begin to narrow from here.
Disney is implementing cost-savings initiatives to better manage its DTC content spending, and it maintained its guidance for Disney+ to become profitable in 2024. It's launching an ad-supported tier in December, which it's expecting to be a robust and lower-cost revenue driver. It has deals with 100 advertisers for the launch, and a wide network of 8,000 advertisers with whom it has relationships through its other content channels.
The company expects the ad tier, combined with price elasticity and better cost management, to bring the program out of the red.
Unparalleled content on its way
What I'm most excited about for Disney is the content that's coming out over the next few months. Disney already has several films slated for release over the next few years. And Disney's content library powers streaming with films that end up on the streaming channels after film releases, as well as straight-to-streaming content based on Disney films and characters.
Marvel Studios in particular has been an incredible asset to the Disney library, and many of Disney's hottest new films are from the Marvel Cinematic Universe. Marvel will also release Avatar: The Way of Water on Dec. 16. This much-anticipated film is the sequel to the highest-grossing film ever.
Disney already has an unmatched content library, and its films lead to all sorts of other revenue generators such as products, more content, and park rides.
And yet, the stock is declining
Disney stock is down after the latest report told of both revenue and earnings misses as well as huge DTC losses. After three years, investors seem to be seeing Disney+ as a drag on profits despite the reassurances that it will become profitable within two years. At least this quarter, streaming seriously ate into Disney's earnings, and for the next year or so, it's likely to keep suppressing them.
Disney has a lot going for it and should be an excellent stock to hold long-term. But there doesn't seem to be a rush to buy in this climate. You can't time the market, but if profitability does improve going forward, the stock price should begin to rise. If Disney's prospects seem compelling to you, and you have a long-term horizon, you can consider adding Disney stock to your portfolio even now.
