Over the past 12 months, a stock market sell-off has affected multiple companies as a rise in inflation has spooked investors. The entertainment industry was hit particularly hard, with households worldwide tightening budgets and cutting down on discretionary spending.
As a result, Walt Disney (DIS -0.36%) shares have plunged 41% year to date. The company enjoyed a significant boost in revenue from a reopening of its theme parks in 2022. However, heavy investment in its relatively recent streaming venture considerably decreased its earnings.
Despite market declines, Disney's stock looks like a stellar buy this December in the run-up to the new year. Here's why.
Hit by a stock market sell-off
The Nasdaq Composite index has fallen 30% since January, and Disney was not left unscathed. However, it has managed to fare better than some of its biggest competitors; Netflix stock has decreased 49% year to date and Warner Bros. Discovery is down 58%.
Disney's most recent quarter offered shareholders a bit of a mixed bag. Park revenue soared 36% year over year to $7.4 billion, with operating income rising over 100% to $1.5 billion. However, the company's media and entertainment business saw revenue fall by 3% to $12.7 billion, and operating income decreased by 91% to $83 million. While Disney's park business saw a strong return of park guests after pandemic closures in 2021, its media segment was hurt by a content spending of $30 billion in its fiscal 2022 as it worked to expand Disney+.
The past year has been a transition period for Disney as it welcomed guests back to its parks and theaters, worked to make streaming a bigger part of its business, and made multiple changes throughout its business to maximize profits. With many of its restructuring moves set for completion by January, next year could offer significant growth.
A promising new year
Disney is heading into its second century of business with some exciting developments in 2023. After a rocky couple of years under the leadership of Bob Chapek, the company brought back its previous CEO, Bob Iger, to take his place. Iger's return rallied investors on Nov. 21, with Disney shares rising 9%.
The former and now current CEO is one of the company's most successful in its history, overseeing the acquisitions of major brands such as Marvel, Pixar, Twenty-First Century Fox, and Lucasfilm. As the company heads into a crucial year, where it will strive to continue growing its parks business and inch closer to profitability in streaming amid a potential recession, Iger is an exciting choice to lead the way.
Moreover, this month Disney will raise the prices of all of its streaming services and launch its ad-supported tier for Disney+. The company revealed in its 2022 fiscal fourth-quarter report that it hit a combined total of 235.7 million streaming subscribers, beating Netflix's 223.09 million members. With its dominant position in the industry and a priority on growing profits, Disney is likely to take significant strides in 2023 toward its goal for Disney+ to reach profitability by fiscal 2024.
Disney suffered considerable losses in 2021 as theater closures hampered box office revenue, with 2022 seeing improvements but still not in top form. However, that could change next year. The company will release James Cameron's Avatar: The Way of Water later this month, the sequel to the highest-grossing film of all time, which will continue screening showings into January.The year will continue with four Marvel blockbusters, the fifth and final installment of Indiana Jones, and a live-action version of The Little Mermaid.
A stock market sell-off in 2022 dragged Disney shares down significantly, but that has only made the company's stock more attractive. Coupled with a promising outlook in 2023 and over the long term, Disney stock looks like an excellent buy this month.
