Walt Disney (DIS -0.61%) stock hit its lowest price in almost a decade last year, bottoming out at 60% off its all-time highs. However, things have been turning around, and Disney stock is up 30% so far this year. Is it too late to buy Disney stock?
Things are going right at the House of Mouse
Disney runs a large, multifaceted business. When all the pieces work together, Disney is a powerhouse. It has an unmatched content library and creative team that churns out hits based on beloved characters and franchises, and these are used to populate Disney's media channels, build theme park rides, and develop new feature films.
However, with so many parts, things aren't always working together. When something goes wrong with one segment, the other ones can lift more weight. That happened early in the pandemic when parks were closed and streaming took off, and conversely, when streaming began to become saturated and parks reopened to high demand.
It takes some finesse and a good deal of organization to ensure everything is operating smoothly. Over the past few years, there's been pressure in too many areas, and investors lost confidence in management. But with CEO Bob Iger's return, that's beginning to lift. He's committed to investing in parks, which are the backbone of the Disney experience, and the company made strong progress on its goals to get streaming profitable. Disney is reevaluating its franchise strategy, since several of its films didn't perform as well as expected at the box office last year, and Iger is giving the creative teams more control over content to reignite its magic.
There are still obstacles
Investors were impressed with the most recent quarterly results, and they sent the stock up. There was no Disney magic in the numbers, but the business is moving in the right direction. Revenue was flat year over year in the 2024 fiscal first quarter (ended Dec. 30, 2023), but operating income increased 27% year over year, and adjusted earnings per share (EPS) rose from $0.99 in 2022 to $1.22 in 2023. The most obvious improvement was in the streaming losses, which contracted from more than $984 million in 2022 to $138 million in 2023. Iger is maintaining that streaming will turn profitable by the end of fiscal 2024, and this quarter demonstrated that it's a likely possibility.
The company is also figuring out what to do with ESPN. ESPN has been a thorn in Disney's side for a while, because once it takes it fully over to streaming, the cable channel will collapse. It signed a deal together with Fox and Warner Bros. Discovery to launch a complete sports channel priced at $50 a month. This should attract real sports fans who are willing to pay premium pricing for access to live events, and the loss in cable subscribers, which is inevitable, will be mitigated.
Things are looking up for Disney
I want to reiterate that these were wonderful updates, but they represent potential more than actuality. Streaming is still unprofitable, and ESPN has yet to launch this new platform. Film studios are still planning, developing, and producing new content that it expects to attract more dollars.
Investors are betting on these things happening the way management says they will. Iger has an excellent track record and knows Disney better than probably anyone else in the world, and he's gained investor confidence.
Even though it's rising this year, Disney stock remains 40% off its highs from 2021. If Disney comes through on its promises and plans, the stock should continue to climb higher. Longer term, Disney stock could create shareholder value, and it's not too late to buy.
