Tired Walt Disney (NYSE: DIS) Shareholders were the recipients of positive news last week when the company provided a positive update on its operations. But the stock is still disappointing, up just 27% over the past decade. That’s staggering underperformance for a Dow 30 stock, and might make you think twice before deciding the company is a worthwhile investment.
Let’s take a look at what all the fuss is about and whether or not you should trust your hard-earned money with a stock that has been a disappointment for too long.
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Media and content consumption has changed dramatically over the past five years. Disney was gearing up for a streaming takeover when it acquired part of Hulu and launched Disney+ in 2019. What it wasn’t prepared for, however, was the way the entire media landscape would change once the pandemic hit.
Frankly, all traditional media companies have struggled since then, not just Disney. Even Netflixno legacy at all, has gone through its own reckoning.
Disney has done an admirable job of rolling out its streaming networks, filling them with content and upgrading its parks. The main factor hindering its progress was the profitability (or lack thereof) of its streaming efforts. Management has been promising for several years that it would be profitable by the end of 2024, and with the release of its fourth-quarter 2024 results last week, it has delivered on that promise.
It was an excellent quarter all around. Revenue increased 6% year over year and the number of paid Disney+ Core subscriptions increased by 4.4 million to 120 million. It had two big summer hits with Pixar Studios Inside out 2 and Marvel Studios Deadpool & Wolverine and the parks segment also increased by 1%.
The big success, however, was the positive operating income of $253 million in the entertainment streaming sector. That doesn’t include sports streaming, and total operating revenue from streaming was $321 million. That was driven by higher paid subscriptions and a 14% increase in advertising for the ad-supported segment, and led to operating income of $1.1 billion for the Entertainment segment, up from $236 million last year, even as linear networks deteriorate. .
Overall, operating revenue rose 23% year-over-year and earnings per share (EPS) rose from $0.14 last year to $0.25 this year.
It’s somewhat surprising how battered Disney stock has become, given the company’s dominance in its field. The name Disney is synonymous with entertainment and continues to be a leader in media, movies and parks.
What you’ll notice in the chart below is that sales have fully recovered from the pandemic lows and have easily exceeded the levels seen a decade ago, while net revenues are still lower than they were a decade ago. The share price is near the middle, after a strong rise in 2020-2021.
Note that net income levels have been seriously hurt by the streaming efforts, and it becomes very clear why the market has placed such a premium on Disney to get its streaming act together. In the graph the change is negative, but Disney has been reporting a positive net result for several quarters. However, it will take some time to surpass previous highs even if business trends remain positive.
In general, it is good to have some money invested in reliable market leaders. But Disney hasn’t been that reliable lately, right? When times change, the largest companies can become dinosaurs and risk going bankrupt.
It doesn’t seem like Disney fits that template these days. It is at the forefront of media trends and its creatives are a machine for new content. Yet the stock has performed poorly in recent years.
There are still risks ahead. Bob Iger was recalled as savior, but the company is once again looking for someone who can successfully lead the company to the next phase. Profits are still lagging behind what the market wants to see.
At today’s price, Disney trades at just 19 times one-year earnings. That could be a bargain, but the low ratio also tells you how cautious the market is.
There is reason for confidence and reason for caution. Investors may want to take a small position on the likelihood of a Disney recovery.
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Jennifer Saibil has positions at Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
Disney investors just got some great news, but is the stock a buy? was originally published by The Motley Fool
