Walt Disney (DIS -1.74%) has attracted attention in recent months, and not for positive reasons. Declining foot traffic at its theme parks, fewer Disney+ subscribers, numerous money-losing films, and uncertainty about the direction of many of its franchises are just a few of its problems.
Consequently, Disney stock is down to lows last seen in 2014. The question for investors is whether that bad news is a buying opportunity or if its slide will continue.
The state of Disney
One can get lost in trying to comprehend the problems facing Disney today. For one, numerous underperforming films, including Indiana Jones and the Dial of Destiny and Haunted Mansion, have weighed on the company.
Also, customers seem less interested in anything related to Disney. In its parks, experiences, and products segment, a strong performance internationally covered up the tepid growth numbers domestically and the declining revenue in its consumer products.
Moreover, fewer customers subscribe to Disney+ as it raises prices and promotes an ad-driven option. Such problems have come to a head as former CEO Bob Iger returned to the top job last November.
Furthermore, these problems show in Disney's lackluster financials. For the first nine months of fiscal 2023 (ended July 1), its revenue of $68 billion is up only 6% compared with the same period in fiscal 2022. Additionally, with higher restructuring and impairment charges and lower interest income, the net income for the same period was $2.7 billion, down 17% year over year.
Making sense of Disney's struggles
The falling income and struggles with many of its businesses leave investors in a difficult position. On the one hand, Disney is the steward of many iconic franchises. In addition to the classic Disney characters and films, franchises such as Star Wars and Marvel remain favorites among fans.
That popularity has made its theme parks a solid, profitable business. And for decades, families have continued to visit despite ticket prices that start at $109 per day. Now, the question for investors is when these businesses will begin to drive investor returns again.
Additionally, ESPN is not exempt from this uncertainty. The sports network is in talks with Amazon about selling a minority stake in the network. Multiple reports indicate that Disney might spin off ESPN if it cannot find a partner.
Also, the partnership supposedly involves launching a fully streaming version of ESPN. Disney and ESPN have also discussed pricing, and analysts believe it would charge between $20 and $35 per month, making it the most expensive streaming service in the U.S.
It is unclear how that would change the value proposition of Disney stock. Such an income stream could revive interest. Still, the company might struggle to restore confidence unless it resolves the issues with its other content-related businesses and theme parks.
Should you consider Disney?
Despite the potential of an ESPN streaming deal, investors should probably avoid Disney stock for now. Admittedly, both ESPN and its content bring enduring appeal, meaning the entertainment stock will likely recover in the long term.
However, Disney has not given investors any indication that the decline in its U.S. theme parks or most of its content-related businesses will stop anytime soon. Until it can attract audiences and theme park visitors in increasing numbers again, the stock is likely to continue falling in the near term.
