It hasn't been a fun ride for shareholders of Walt Disney (DIS -2.45%). As of this writing, the stock is down 59% from its peak price, and it's down 6% in 2023. That's a disappointing performance compared to the 13% gain of the S&P 500 this year.

At a forward price-to-earnings ratio of 22, investors might be eyeing the House of Mouse as a potential buying opportunity. But I think it's important to understand a key development before making that decision. In fact, it might just lead you to completely avoid this top media stock. 

Streaming troubles 

In November 2019, the business launched Disney+, its flagship streaming service that houses content that competes with the likes of Netflix, Warner Bros Discovery, Amazon Prime Video, and others. Many had wondered why it took the company so long to release this offering. It's easy to see that it's been a success, now with 105.7 million subscribers (excluding Hotstar). If we count all of the members in Disney's direct-to-consumer (DTC) segment, which includes Disney+ Core, Hotstar, ESPN+, and Hulu, there are 219.6 million customers. 

That's certainly some massive scale. However, there's one glaring issue. Despite having that many subscribers in its DTC segment, Disney continues posting sizable operating losses in this division, to the tune of more than $500 million in the most recent quarter (Q3 2023, ended July 1). To be fair, that's about half the loss compared to the same year-ago period, but it's still troubling.  

CEO Bob Iger believes Disney+ can be profitable by the end of fiscal 2024, but I'm skeptical, given how competitive the streaming industry has become. Disney plans to raise the price for the ad-free tier of Disney+ in October, while also cracking down on password sharing. 

Moreover, the leadership team is trying to optimize its expenses by focusing on spending less money on content. It reported $2.6 billion of restructuring charges last quarter, mainly to pull content and end licensing agreements. I think it'll be extremely difficult to continue growing the subscriber base while charging higher prices and releasing less fresh content. 

With a 12-year head start in the streaming industry, Netflix is running laps around Disney. Not only did it add more members in its latest quarter (Q2 2023, ended June 30), but the average revenue it generates per user is much better than Disney+. Plus, Netflix is profitable, with executives expecting the business to post an operating margin of between 18% and 20% and free cash flow of $5 billion this year . 

Netflix was able to achieve so much success primarily because of its first-mover advantage. This makes what Disney's trying to do, namely optimize for financial success and expand the membership base, all the more difficult, given how crowded the industry has become. 

It's safe to say that Walt Disney is undergoing some major changes right now, which results in heightened uncertainty for shareholders. That's a good enough reason to avoid the stock.

A positive note 

While Disney's streaming operations try to gain solid footing, all hope isn't lost with the company overall. The Parks, Experiences, and Products division saw revenue and operating income jump 13% and 11%, respectively, in the latest quarter. In particular, international markets led the way, thanks to the reopening of parks in China. Moreover, higher ticket prices and guest attendance helped. 

This points to Disney's diversified revenue base. It might take the DTC division a while to reach the black, but the business can rely on a profitable Parks, Experiences, and Products segment to pick up the slack.  

Some investors might believe that this provides a valid argument to buy the stock. However, I'm not so convinced. The future is streaming. Unless Disney starts to show some serious progress against its goals in this area of the media landscape while also catching up to Netflix's impressive financial profile, it's an easy decision to pass up the shares.