Walt Disney (DIS -0.04%) is facing multiple headwinds, and management is looking at ways to unlock value for shareholders. Profits are down, and Disney's stock is struggling so badly that it's trading at levels it hasn't seen in nearly a decade.
Is the stock in real trouble, or can Disney turn things around and prove to be a great buy for investors who are willing to take a chance on it?
It's not just streaming that's struggling
A big problem for Disney is that its streaming service, Disney+, is a money pit. It costs money to produce content and compete against streaming rivals like Netflix. And at the same time, prices aren't high enough for the business to be profitable. In the fiscal 2023 third quarter (ended July 1), the company's direct-to-consumer segment (which includes Disney+) incurred an operating loss of $512 million. On the bright side, this was better than the $1.1 billion loss it reported in the same period last year.
However, Disney's problems go beyond just streaming. Its domestic and international channels, which make up its linear networks segment, also aren't doing well. Revenue from the segment totaled $6.7 billion last quarter, down 7% year over year. Operating income of $1.9 billion was down 23%. The company blamed the performance on weak results at ABC and other television stations. In addition to viewership being down, the company's advertising rates were also lower, suggesting weaker demand in the ad market.
The company is looking to sell assets
According to Bloomberg, Disney is reportedly negotiating a sale of ABC with media company Nexstar. Bloomberg also reports the company is contemplating the sale of its Indian assets (including streaming and television).
Selling its media assets would allow Disney to free up capital and focus on other growth areas, such as parks or streaming. But that would undoubtedly be a big shake-up for the company as linear networks accounted for 30% of the company's revenue last quarter and more than half of its operating income. However, Disney may not necessarily sell all of its channels or do away with the linear networks business entirely.
Could there be trouble ahead in the parks business?
One area that has been doing well for Disney this year is its parks and experiences segment. Sales from that segment totaled $8.3 billion last quarter and rose 13% year over year. But there have been reports of softening demand this year. The company also recently announced that for a limited time it would offer discounted tickets for kids in an effort to increase traffic.
From a broader, macro context, data from Morning Consult suggests "revenge travel" following the pandemic is beginning to fade. Pent-up demand has kept travel companies busy this year, and that likely contributed to the strong results for Disney's park business in the first half. But looking ahead, if consumers dial down their demand for leisure travel or the economy doesn't have the soft landing that many people are hoping for, then even Disney's parks business may not look so great in the near future.
Should you buy Walt Disney stock?
Disney is a business with many question marks surrounding it. While there's no doubt the brand is strong and still resonates with consumers, what approach the business takes from here could have a drastic impact on its long-term future. Moving away from linear networks, for example, would make the business less diversified and also more dependent on Disney+, which may not be profitable anytime soon.
But with some iconic brands and characters in its portfolio, Disney is a company that has all the tools it needs to succeed in the long run. The business may be at a crossroads, but its operations aren't broken, nor is the company in big trouble. It may be a bumpy ride ahead given all the uncertainty, but the stock does have the potential to be a great contrarian buy for long-term investors.
