With countless stocks on the rise in 2023, several streaming and entertainment companies have joined them -- beginning a recovery from their steep declines last year. For instance, Walt Disney (DIS -0.55%), Netflix, and Warner Bros. Discovery have enjoyed stock price growth between 22% and 41% since Jan. 1.
Despite the market's recent upward trend, Disney shares are still down 23% year over year. The company's stock has enjoyed considerable growth in 2023, but it likely still has a mountain to climb before it fully gains investors' trust as a strong buy.
Here's why it's wise to keep a long-term perspective with Disney's stock in 2023.
A promising start to the new year
Investors have grown bullish about Disney shares in the new year, pumping up its stock 22% year to date. The rally was triggered by the box office hit Avatar: The Way of Water, which had earned $2.24 billion by Jan. 22, becoming the sixth-highest-grossing film in history. The sequel to 2009's Avatar reportedly cost $350 million to produce, suggesting it will provide a much-needed boost to Disney's media earnings.
Investors have been further encouraged by Netflix's earnings release on Jan. 20, in which the streaming company revealed it added 7.6 million subscribers in its fourth quarter of 2022. As Disney has beaten Netflix for most subscribers in the two quarters prior, its stock has benefited from the prospect it could be in for a big boost to memberships.
In the fourth quarter of its fiscal 2022, ended Oct. 1, 2022, Disney's media and entertainment segment reported a 3% year-over-year decline in revenue to $12.7 billion and a 91% decline in operating income to $83 million after a significant investment in streaming content. As a result, recent signs that the segment is recovering have its stock on the rise.
Disney's stock is a very long-term hold
The last few years haven't been easy for Disney, with its stock down 5% since 2018. By comparison, shares of streaming competitors Netflix and Apple are up 58% and 220%, respectively, over the same period. Disney has been hit far harder over the long term, with the company having to contend with pandemic closures in 2020 and 2021, which stifled revenue from theme parks and theaters. Then in 2022, Disney suffered from macroeconomic headwinds and the hefty expense of trying to succeed in the competitive streaming industry.
With pandemic reopenings seemingly here to stay, prompting consumers to boost parks operating income by over 100% in Q4, and Avatar: The Way of Water proving the box office is back, Disney should have a smoother and more lucrative next five years. However, that doesn't mean you shouldn't be cautious with its stock and be prepared to hold for five to 10 years as the entertainment giant fine-tunes its restructured business and achieves profitability in streaming.
When comparing price-to-earnings ratios in the streaming industry, Disney's is by far the highest -- seen in the table below.
Data by YCharts
The figures suggest other entertainment stocks are currently offering more value than Disney, even with its shares down over 20% since last January.
Since its founding almost 100 years ago, Disney has proven itself as a king of entertainment in nearly any form. The company has only strengthened that claim with its swift growth in streaming, dethroning Netflix for most subscribers and market share in 2022.
The company's primary strength lies in its almost unparalleled library of immensely popular media franchises, which includes such brands as Marvel, Pixar, Star Wars, Avatar, and the many titles under Walt Disney Studios. As a result, the company will likely be around another hundred years.
Investing in the stock market should always be done with a long-term perspective. Disney's dismal growth over the last five years makes its stock feel unreliable, so it's best to exercise caution with the company for now and be prepared to hold the investment well into the future.
