Last year was rough for Walt Disney (DIS 0.27%) investors. Shares of the media giant plummeted 46% in 2022. Can the House of Mouse bounce back in 2023?
The first major analyst move on Disney of the year may not seem very comforting at first glance. Tim Nollen at Macquarie is lowering the price target on the stock, from $120 to $110. The near-term goal keeps moving in the wrong direction, but it bears pointing out that the shares have closed in the double digits for the past eight weeks. The new target is still 24% higher than where Disney stock closed on Tuesday. Nollen continues to tag Disney with a bullish outperform rating.
Image source: Disney.
It's all relative
Nollen feels that Disney shares can bounce back from their brutal 2022 showing, especially if returning CEO Bob Iger can execute his plan to clean up the red ink at Disney+ and the entertainment behemoth's other direct-to-consumer media properties. It's not all positive. Nollen is inching his near-term estimates lower based on weakness across the advertising market.
It was just two months ago that Nollen lowered the price target on the stock from $140 to $120 after Disney's problematic fiscal fourth-quarter results. The $1.5 billion operating loss for Disney's streaming business was an eye-opening plot twist. The same Disney+ that investors were cheering for its initial growth two years earlier has become a profit-slurping albatross. The disruptive platform that was widely hailed as brilliant by Wall Street in the early stage of the pandemic was being largely panned as a mistake. Subscriber counts were rising, but even in the U.S. the average revenue per user was on the decline.
NYSE: DIS
Key Data Points
There are reasons to be hopeful. A 38% price hike for the ad-free Disney+ offering kicked in last month. It will likely result in an uptick in churn, but it should help bolster the bullish argument for the platform's viability. The increase was accompanied with the rollout of an ad-supported version at the old price, giving viewers a way to save money without giving up the premium streaming service. At the very least, average revenue per user should finally start moving higher in the coming quarters.
Disney's theme parks were among the few bright spots in Disney's last report, and that segment appears to be wrapping up a very strong showing during the seasonally potent holiday season. Disney also closed out the year with another big theatrical release in Avatar: The Way of Water. The movie is closing in on $1.5 billion in worldwide ticket sales through its first three weeks of screenings. There may be long-term concerns about the multiplex industry, but Disney did close out 2022 with three of the four highest-grossing films in the U.S. market.
There are some valid knocks on Disney's legacy media networks business. Advertisers are starting to pare back their marketing budgets, and the secular decline in cable and satellite television subscriptions continues. With Disney gaining so many new viewers through Disney+, Hulu, and ESPN+ it will be fine on that front, as long as it can succeed in narrowing the losses.
Disney has a lot of moving parts, something that is true about most media stocks. It doesn't need to be firing on all cylinders to shift out of reverse. Even if it succeeds on just some of Iger's turnaround moves it should be enough to get Disney stock back into the triple digits again.
