It's been a tumultuous 2023 for The Walt Disney Company (DIS 0.92%). Challenges included twin strikes by writers and actors, a contract dispute with Charter Communications, and an unprofitable streaming business. What a way to mark the company's 100th birthday!
No wonder Disney stock's 52-week low of $78.73 on October 4 also represented a nine-year low. Thanks to an end to the strikes and encouraging results for its 2023 fiscal year, ended September 30, Disney stock is up -- but still far below its 52-week high of $118.18.
Does the depressed share price present a buying opportunity? Or do reasons still exist to stay away from Disney stock? To answer that, let's take a look at the company in more detail.
Disney's streaming business
One of Disney's key businesses is its streaming operations. The company's traditional linear TV networks, such as ABC, are experiencing declines in revenue as consumers flock to streaming services. In its fiscal fourth quarter, Disney's linear networks segment saw revenue drop to $2.6 billion from $2.9 billion last year.
This means Disney's streaming business is critical to the company's success, and this business, which falls under its direct-to-consumer (DTC) division, is growing. DTC revenue jumped 12% in Q4, reaching $5.0 billion. The company's Disney+ streaming service also saw strong subscriber growth internationally in Q4, hitting 66.1 million subscriptions, up from 56.5 million at the end of fiscal 2022.
Moreover, Disney plans to buy out Comcast's 33% stake in Hulu, a move that should strengthen its streaming business. But the company isn't waiting for full Hulu ownership as it combines the Disney+ and Hulu platforms into a unified app launching in December.
Merging the two platforms simplifies the experience for consumers while reducing costs and improving margins for Disney. In addition, Disney found that bundling multiple streaming services improves customer retention.
Even so, the DTC segment suffered an operating loss of $420 million in Q4. However, Disney is working to transform its streaming division into a profitable business. Its Q4 operating loss was a 70% improvement from last year's $1.4 billion loss, and the company anticipates achieving Disney+ profitability by the end of the 2024 fiscal year.
Disney's other strengths
Disney's entertainment empire is diversified, giving it strengths that competitors lack. One example is the company's ESPN sports network.
Disney sees this asset as a key part of its future success, and consequently introduced a new organizational structure in Q4, breaking out ESPN's financials as Disney moves toward expanding its sports business. In Q4 the sports segment's revenue was flat year over year, but its operating income grew 14% to $981 million.
Disney's non-film businesses, which include its theme parks, retail stores, and cruise ships lumped under its "experiences" segment, is another area of strength. This division is flourishing. Its Q4 revenue grew 13% year over year to $8.2 billion.
The experiences division is also Disney's most profitable business unit. In Q4, operating income was $1.8 billion, an impressive 31% increase year over year. The success of this division is why Disney will invest $60 billion into its theme parks over the next decade.
Deciding on Disney stock
With its streaming and experiences divisions growing, and ESPN teed up as the next growth area, Disney is well-positioned to build on this foundation. And there's more.
Another sign Disney is bouncing back from a turbulent time is its rising free cash flow (FCF). The company's FCF has steadily improved since it was decimated by the onset of the COVID-19 pandemic. Disney routinely generated FCF above $6 billion before the pandemic struck.
Data by YCharts.
In Q4, FCF reached $3.4 billion, over 100% growth compared to the prior year's $1.4 billion. Disney exited its fiscal 2023 with $4.9 billion in FCF, and expects fiscal 2024 FCF to reach "levels last seen pre-pandemic." As a result, Disney is looking to reinstate its dividend by the end of next month.
Yes, Disney had a rough 100th year in business. But given its strengthening financials, the worst appears behind the storied entertainment giant. CEO Bob Iger indicated that when he said, "Today, we are focused on driving profitable growth and value creation as we move from a period of fixing to a new era of building."
Disney's increasing FCF, strengthening streaming business, focus on sports, and growth in its experiences division suggest a bright future for the entertainment giant. So with the stock price well off its 52-week high, now is a good time to pick up shares.
