Walt Disney Company (NYSE:DIS) stock, with a year-to-date gain slightly above 6%, lags significantly behind the S&P 500 Index ($SPX). This extended underperformance, with an 18% loss over the last five years and a modest 31% gain over the past decade, raises questions about the iconic entertainment giant’s ability to rebound in 2024.
Analyzing Disney’s Underperformance
A historical perspective shows Disney’s shares failing to keep pace with the SPDR S&P 500 ETF (SPY), delivering only one-fifth of the returns over the last decade. Despite being a globally recognized brand catering to diverse age groups, Disney’s recent struggle to meet investor expectations is evident.
Factors Behind Disney’s Decline
1. Profit Growth Concerns
Disney’s operating profit, which stood at $10.7 billion in fiscal year 2013, has seen modest growth, reaching $12.8 billion in the most recent fiscal year. Despite a rise from COVID-19 lows, this anemic growth over the past decade mirrors the lackluster performance of Disney shares.
2. Decline in Media Networks Contribution
Disney’s reporting changes over the last decade make direct comparisons challenging. The once-dominant Media Networks segment, contributing over 63% of operating income in fiscal year 2013, has seen a drastic fall. The combined Entertainment and Sports segment in fiscal year 2023 reported an operating income of $3.9 billion, $2.7 billion lower than the Media Networks segment in 2013.
3. Streaming Challenges
The decline of cable TV, impacted by the rise of streaming, has affected Disney’s profits. Although Disney+ reached 100 million subscribers in 16 months, the streaming segment, now part of the Entertainment segment, continues to post losses.
4. Box Office Underperformance
Recent releases, including “Wish” and “The Marvels,” have underperformed at the box office. CEO Bob Iger’s return has not immediately translated into stock recovery, despite various measures taken to revive the company.
Disney’s Recovery Outlook for 2024
Bob Iger’s strategies to revive Disney could bear fruit in 2024:
1. Quality Over Quantity
Acknowledging underwhelming theatrical releases, Iger emphasizes prioritizing quality over quantity, signaling a shift in Disney’s content strategy.
2. Streaming Business Progress
Iger anticipates Disney’s streaming business reaching breakeven by the fiscal year’s end, with expanded cost-cutting initiatives targeting $7.5 billion in structural savings.
3. Direct-to-Consumer Platform and Investments
Plans to launch a direct-to-consumer platform for ESPN by 2025 and investments totaling $60 billion in parks over the next decade demonstrate Disney’s commitment to future growth.
4. Market Perception and Profitability
Iger’s focus on movies as a powerful tool for shaping the company’s perception underscores a strategic shift from fixing to building. The company’s streaming profitability and cost-cutting measures could reshape market perception and drive stock recovery.
Conclusion: The Return of Disney’s “Magic”
Despite recent challenges, Disney’s strategic initiatives, cost-cutting measures, and renewed focus on quality content position the company for potential recovery in 2024. With a next 12 months price-to-earnings multiple of just under 21x, the stock appears reasonably valued, and successful execution of Iger’s plans could reshape market sentiment and lead to stock resurgence.
Featured Image: Megapixl
