It's been more than two months since shares of Walt Disney (DIS +0.83%) closed in the triple digits. Oh, the stock has had its intraday dalliances north of $100 in that time. It's doing that dance right now. However, like the flimsy, caramelized sugar crust of a crème brûlée, the ceiling has proven to be brittle. The crackling sound turns heads, but we ultimately fall back into the pudding.
Will it be different this time? The market is showing signs of life, and Disney itself is on a roll. It has a beloved former CEO back at the helm. It's the studio behind the film that will soon be the first film since 2019 to crack $2 billion in worldwide ticket sales, Avatar: The Way of Water. Disney's industry-leading theme parks are cranking out record results. Steep losses aside, Disney+ has achieved more than any premium streaming service has done -- or will likely ever do -- in its first three years of lining up living rooms.
Can Disney stock stay and close above $100 this time? Can it hold the round milestone, humbly knowing that it would still have to double from here to get back to the all-time highs it reached two years ago? It's time to wield a spoon.
Image source: Getty Images.
From deserts to desserts
The pandemic did a number on many leading media stocks. Disney had to shutter its theme parks for months, tethering its cruise ships to docks even longer. Folks lost an affinity for the multiplex. Advertisers had to pare back their expectations on how much they were willing to spend to reach audiences hunkering in homes.
Eventually, Disney found its way out of the wildest ride in the wilderness. It's back to dominating at the box office, cranking out three of the industry's four highest-grossing theatrical releases of 2022. It expanded its fleet to five cruise ships this past summer. And it tweaked pricing and introduced premium offerings to increase per-capita spending at its domestic theme parks by 40% from pre-pandemic levels. Its premium streaming services now account for nearly a quarter of Disney revenue, helping it offset the weakness at its traditional media business.
NYSE: DIS
Key Data Points
Disney is doing better than its stock chart suggests, but the road to recovery is paved with potholes. The biggest problem -- and what returning CEO Bob Iger has made his top priority -- is reversing the red ink for Disney's thriving yet bleeding streaming services. The segment helmed by Disney+ produced an operating loss of more than $4 billion in fiscal 2022. Pressure need to be applied on the wound until the bleeding stops.
Other businesses, including its theme parks, consumer products, and studios, are moving in the right direction, but 2023 poses challenges: Will economic uncertainties curb consumer spending? What happens to Disney's gated attractions and cruise ships if there's less money to spend on travel?
The House of Mouse is delivering brilliant results at its theme parks, but it got there with a pricing gun and polarizing premium offerings that won't pack the same kind of punch in a recessionary environment. Indeed, you must be this tall to writhe.
Iger handed the CEO reins to Bob Chapek at the worst possible time, just as the world was cascading into a pandemic-saddled funk. He's taking them back at an equally challenging time. The recovery for consumer-facing companies will have to swerve around inflationary and recessionary cones in the road.
The good news, again, is that the stock is still half of where it was at its peak 22 months ago. Overall market valuations have been adjusted lower, and it's not as if Disney is cheap, at 24 times forward earnings estimates.
The long-term future remains bright for Disney as well as other well-positioned media stocks. Disney's bottom line could rise dramatically in the coming years if the economic downturn is brief and the resolution to turn its streaming services profitable is strong. Disney+ rolling out price hikes and ad-supported plans last month should help.
So have some faith, and pack an appetite. You don't need to trade in your dessert spoons for shovels.
