Walt Disney (DIS 0.92%) stock was trading around $125 a share in August 2022. Today, its stock is changing hands for around $90 a share, representing a drop of almost 30%.
During that period the company swapped out its CEO and instituted a plan to rein in billions in costs.
Given all the changes going on with Disney over the past several months, is now the right time to buy stock in this entertainment giant? Let's break it down and see if an answer presents itself.
Disney is dealing with content and marketing spend
Over the last few years, Walt Disney spent heavily on programming in an effort to firm up its position as a leading entertainment company. In fiscal 2022, the company committed $32 billion to content, vastly overshadowing the $17 billion spent by streaming rival Netflix. However, with Walt Disney losing Disney+ subscribers over multiple quarters and its linear TV unit seeing a drop in revenue, the House of Mouse is now focused on saving $5.5 billion -- $3 billion of which will come from its slate of content across multiple studios and networks.
"[W]hen we launched [Disney+] ... we wanted to flood the so-called digital shelves with as much content as possible," said Walt Disney CEO Bob Iger during the company's fiscal 2023 second-quarter call. "And now, as we grow the business ... we're getting much more surgical about what it is we make."
Iger also suggested Walt Disney's "big tentpole movies" are useful for attracting new subscribers to Disney+, but that the messaging has not always been effective. "We were spreading our marketing costs so thin that we weren't allocating enough money to even market [theatrical movies] when they came on the service," Iger said. Going forward, the executive promised the company would "allocate the appropriate marketing dollars."
Parks and pullbacks are a focus for Disney right now
One part of Walt Disney's business that has been performing well over recent quarters is its Parks, Experiences, and Products segment, which generated $7.7 billion in Q2 2023, up 17% year over year.
Iger noted on the investor call that the company has "several international expansions underway," that should help "build capacity and drive longer-term growth." That pronouncement follows a commitment from the company to invest $17 billion in its Florida parks over the coming decade.
Despite all that, Walt Disney is also canceling some high-profile projects in the Sunshine State. The company recently announced it will close its Florida Disney World Resort hotel, Star Wars: Galactic Starcruiser, at the end of September 2023. The immersive facility -- which was designed by the company's park development team (aka Imagineering) -- opened in March of last year, offering guests a two-night experience surrounded and served by costumed Star Wars characters. Walt Disney has not disclosed why it is closing Galactic Starcruiser, but at $5,000 per night for a two-person stay, it's likely that the hotel was not profitable as the company initially hoped.
The cancellation of Galactic Starcruiser follows Walt Disney's decision to shut down a $1 billion campus project in Central Florida. The site was expected to bring 2,000 jobs to the area, including the relocation of much of the company's Imagineering team from California to Florida.
Again, Walt Disney did not explicitly state why it is shutting down the project, simply citing "changing business conditions." But some have linked the move to Walt Disney's ongoing legal dispute with the Florida legislature and governor. If that is the case, as has been speculated, the $17 billion Florida parks investment may also be reconsidered.
Iger addressed the conflict between Walt Disney and Florida during the Q2 call, saying the company "never expected to be in the position of having to defend [its] business interests in federal court." The CEO then posed somewhat of an open-ended question: "Does the state want us to invest more, employ more people, and pay more taxes, or not?"
The long-term outlook for Disney
For investors considering Walt Disney's stock, it's worth highlighting how Walt Disney's issues in Florida are stirring interest in other parts of the U.S.; there are rumors it is considering moving operations to other states in the wake of encouragement from Republican and Democratic figures for Walt Disney to do just that. Of course, the company is yet to make such a move, but considering the $1 billion Imagineering campus had been arranged to take advantage of tax incentives, it seems likely Walt Disney would seek out similar benefits elsewhere.
Of course, there's also a risk that the company finds itself tangled in a protracted legal fight with Florida, which runs the risk of souring Walt Disney's standing with supporters of Florida's Gov. Ron DeSantis.
Shareholders would do well to see how Walt Disney's decision to pare back spending impacts Disney+ subscriber numbers. If the company can bring consumers back to the service while spending less, that may be a boon for investors.
