Will Walt Disney Stock recover in 2022?


The reopens Walt disney‘s (NYSE: DIS) theme parks and the growth of its three streaming services (Disney +, Hulu, ESPN +) were not enough to push the title up in 2021. The share price is currently down 14.5% from the start. of the year, behind the return of 27% of the S&P 500 index.

The fleets segment recovered well, with revenue nearly doubling year over year in the fiscal fourth quarter. But the slowdown in the growth of Disney’s renowned streaming service, Disney +, caused stocks to plummet towards the end of the year. Here’s why the title is expected to rebound in 2022.

The new original “Star Wars” series is released on December 29 on Disney +. Image source: Walt Disney.

Where is Disney + in 2022?

Disney’s investment case is based on disney + growthSo it’s understandable that the stock is trading based on the rate of growth in subscriber numbers, but the market overreacted to Disney’s results last quarter.

Like Netflix (NASDAQ: NFLX) As demonstrated over the past 10 years, content releases drive subscriber growth. Disney started the year strong with the release of Marvel’s Wanda Vision, The Falcon and the Winter Soldierand Loki – all original series published exclusively for Disney +. Growth followed, with Disney adding 12.4 million subscribers in the third quarter ending July 3.

The fourth quarter was quiet for new releases, and as a result, subscriber growth slowed to 2.1 million subscriber additions. Like clockwork, the stock slipped.

Market players seem to have extrapolated a quarter of growth into the future, which doesn’t make sense. Of course, analysts are measuring the company’s performance against management’s forecast that Disney + will reach between 230 million and 260 million subscriptions by fiscal 2024. Disney has three years to double its subscribers, But that should be easy given that Disney has come this far without fully exploiting the rich pipeline of content it unveiled a year ago.

Disney began operating this pipeline last month. Remember, Disney previously announced 10 original series each from Marvel and Star warsas well as 30 live Disney and Pixar animated shows over the next several years. In November, Disney released the Peter Jackson Beatles documentary and the Marvel movie. Hawk Eye. But the big one came out on December 29, a new Star wars original series called Boba Fett’s book.

Disney is ending the 2021 calendar on a high note, but there’s a lot more on the way that could be explosive for subscriber growth.

Disney’s international projects

During the fourth quarter earnings call in November, Disney CFO Christine McCarthy reminded investors that they don’t expect “[subscriber] growth will necessarily be linear from quarter to quarter. McCarthy suggests that subscription growth should keep pace with new content releases.

On that note, Disney almost doubles the amount of original content from its major brands in fiscal 2022. Much of that content will arrive later in the year, as McCarthy said: “We expect what the Disney + subscriber network adds in the second half of fiscal 2022. will be significantly higher than in the first half of the year. ”

Disney’s previous forecast for spending on content production was between $ 8 billion and $ 9 billion by fiscal year 2024. Management has said that range will now be higher, as it increases prices. spending on local and regional content.

Disney takes a page from Netflix’s playbook. The latter has grown very successfully in international markets by focusing on the production of local language content. It’s a bonus that some of these shows, like La Casa de Papel (a.k.a Money theft) and Squid gamehave also resulted in a high number of viewers in the United States and Canada. Localized content can drive subscriber growth around the world.

Disney CEO Bob Chapek mentioned that the company has over 340 original local titles in various stages of development and production on its direct-to-consumer platforms, which would include Hulu and ESPN +. These are slated for release over the next several years.

Streaming will add tremendous value to Disney

Adding it all up, the Disney + service is clearly undervalued by the market right now. The stock is currently trading at just over 20 times Disney’s record earnings in fiscal 2018. But given Netflix’s 23.5% operating margin, Disney + is expected to be a major contributor to Disney results. The forecast still indicates that the service will reach profitability by fiscal 2024.

What’s more, Chapek’s Disney background suggests that investors should expect margin increases across the company over time. This best entertainment stock is expected to rebound in 2022.

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Jean Ballard owns Netflix and Walt Disney. The Motley Fool owns and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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