Why is Disney Stock Trading lower in 2021?

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When you think of the success stories of 2021, one of them seems to be Walt disney (NYSE: DIS). It is the studio behind this year’s two highest-grossing films at the domestic box office. Disneyland in California reopened in the spring and the company resumed cruises during the summer.

Revenue climbed 45% better than expected in its most recent quarter, its biggest year-over-year increase in ages, although it is true that performance follows results depressed a year ago. Disney is back in business, but the same can’t be said for its stock chart. After climbing 26% last year – when it wasn’t running exactly on all cylinders – the stock is trading 4% lower in 2021 through Monday’s close. It doesn’t seem fair, so let’s explain why Wall Street isn’t exactly doing the Mickey Mouse March these days.

Image source: Disney.

Grilling Expectations

To assess this year’s seemingly inexplicable slide, one must begin by assessing last year’s inexplicable rise. Disney has been hit hard by the pandemic, recording double-digit year-over-year drops in revenue for four straight quarters before its spring rebound this year. With its theme parks closed or operating at limited capacity and no theatrical release for its big-budget movies, it’s easy to see why the past year was tough for the House of the Mouse.

However, Disney + has proven to be a silver bullet in the pandemic. Launched in late 2019, the premium streaming service has catapulted into homes around the world through 2020. There are now 116 million paying subscribers worldwide. While it represents only a small portion of Disney’s revenue mix, the success of the new service has given growing investors a reason to view the media giant as a promising streaming service stock for which multiples of. Wider valuations were acceptable.

Disney + has not been a driver in calendar year 2021. Subscriber growth has slowed and average revenue per user has contracted as it is rolled out in new countries where prices are charged. monthly subscriptions are lower. The move brought attention back to Disney as a top-notch media mogul, and it’s not as easy a sale as you might think in this climate.

The income investors who bailed out Disney when it suspended its payment at the start of the COVID-19 crisis are not coming back because the payments are not coming back. Disney does not seem in a rush to return money to its shareholders through cash distributions, especially when that money can be better used to develop its streaming content, upgrade its theme parks, and expand its fleet of cruise ships.

As popular as Disney + is, Disney doesn’t expect it to turn a profit until fiscal 2024. Its broadcast and media networks arm, which held up quite well last year when people turned spent more time watching TV at home, still faces a problematic future of cable cutters as consumers cancel their cable and satellite TV services.

If that sounds dark, let’s wrap it up with a fairytale finish worthy of a Disney animated classic. Disney surprised investors when its theme park segment returned to profitability in its final quarter, and the future looks even brighter with new monetization initiatives that will increase per capita spending during the year. future. Disney is already winning at the local multiplex again, but it has withheld some of its biggest releases, which will be blockbusters in the coming quarters. Fiscal year 2022 – which started less than two weeks ago – is going to be a solid year for Disney. The action may not reflect that at the moment, but with only a good one or two trading days left before it turns positive in 2021, it wouldn’t be surprising for Disney to increase this calendar year as we move forward. will have finished. Disney may be down, but it certainly hasn’t come out.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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