Entertainment giant The Walt Disney Company’s (DIS) parks, experiences, and products divisions are rebounding following a rough patch during the pandemic. While its parks and cruise businesses got slammed, the Disney+ streaming service became a significant revenue driver.

However, DIS posted a drop in streaming subscribers in the fiscal second quarter ended April 1, 2023, marking the second consecutive quarterly decline. The company saw a 2% decline in memberships, falling to 157.8 million subscribers from 161.8 million as of December 31, 2022, mainly attributed to an 8% drop in membership at India’s Disney+ Hotstar and an additional 600,000 subscribers lost domestically.

Although streaming losses narrowed during the quarter, as price increases helped offset the loss of subscribers at Disney+, its linear TV networks revenue decreased 7% from a year earlier to $6.63 billion.

Its direct-to-consumer segment reported a loss of $659 million during the quarter. The company’s direct-to-consumer business could remain under pressure in the near term. Streaming companies are facing the brunt of inflation and recessionary concerns as consumers become more conscious about their media spending.

Moreover, a weakness in the ad market and DIS’ ongoing legal dispute with Florida adds to the woes. Also, DIS faces stiff competition from streaming behemoths such as Netflix Inc. (NFLX), Amazon.com, Inc. (AMZN), and Apple Inc. (AAPL), increasingly dividing market share.

“We see near-term uncertainties weighing on earnings, valuation, and sentiment,” Macquarie analyst Tim Nollen wrote. “We still appreciate Disney’s efforts and expect its transformation to streaming to succeed, but we see the stock as range-bound for now.” Moreover, he is concerned about DIS’ ability to reach streaming profitability by 2024, the company’s current target.

DIS shares have been on a downward trajectory, trading below its 50-day and 200-day moving averages of $95.94 and $98.84, respectively. In this article, we will look at some of its metrics to gauge its challenges and further understand why it could be best to avoid DIS now.

Analyzing Net Income, Revenue, and Gross Margin Trends

DIS’ trailing-12-month net income has shown significant fluctuations over the past years while displaying overall positive growth:

• June 2020: -$1.1 billion
• October 2020: -$2.86 billion
• January 2021: -$4.95 billion
• April 2021: -$4.51 billion
• July 2021: $1.13 billion
• October 2021: $1.995 billion
• January 2022: $3.08 billion
• April 2022: $2.65 billion
• July 2022: $3.14 billion
• October 2022: $3.145 billion
• December 2022: $3.32 billion
• April 2023: $4.12 billion

Initially, DIS faced a period of consecutive net losses in 2020 and early 2021, with the largest net loss of -$4.95 billion in January 2021. However, the company started to recover in July 2021, when it posted a net income of $1.13 billion, followed by a steady increase. The most recent data point, April 2023, showed a net income of $4.12 billion, considerably higher than the previous periods. The growth rate from June 2020 (-$1.1 billion) to April 2023 ($4.12 billion) is approximately 474%. Overall, the trend highlights a strong comeback for DIS after overcoming a period of financial challenges.

Here is the summarized trend and fluctuations of DIS’ trailing-12-month revenue over the reported periods:

• June 2020: $69.75 billion
• October 2020: $65.39 billion
• January 2021: $60.74 billion
• April 2021: $58.35 billion
• July 2021: $63.59 billion
• October 2021: $67.42 billion
• January 2022: $72.99 billion
• April 2022: $76.62 billion
• July 2022: $81.11 billion
• October 2022: $82.72 billion
• December 2022: $84.42 billion
• April 2023: $86.98 billion

The data shows a fluctuating trend in revenue for DIS from June 2020 to April 2023. The company experienced a decrease in revenue from $69.75 billion in June 2020 to $58.35 billion in April 2021, showing signs of recovery since then. The growth rate from June 2020 to April 2023 is approximately 24.73%, with the last value in the series being $86.98 billion in April 2023. It is important to note that the most recent data indicate a consistent increase in revenue from July 2021 to April 2023, reaching its highest value of $86.98 billion as of the provided data.

A summary of DIS’ gross margin trends and fluctuations: –

Starting at 36.00% on June 27, 2020, DIS’ gross margin experienced a decline reaching 29.90% by January 2, 2021. Also, a period of fluctuation occurred between April 2021 and October 2022, with the gross margin moving between 30.60% and 34.40%. In more recent data, from December 31, 2022, to April 1, 2023, DIS gross margin declined slightly, going from 33.40% to 33.00%. The overall growth rate of DIS’ gross margin between June 27, 2020, and April 1, 2023, was negative 3%.

The Analyst Price Target for DIS has experienced a downward trend with fluctuations from November 12, 2021, to June 14, 2023.

A summary of the data is as follows: –

The series started with a stable Analyst Price Target of $210 from November 12 to December 10, 2021. Between December 17, 2021, and April 15, 2022, it gradually decreased from $203.75 to $190.

There was a sharper decline from April 22 to July 29, 2022, decreasing from $187.7 to $145. From August 5, 2022, to October 21, 2022, the Analyst Price Target was consistently at $145, while from October 28, 2022, to January 13, 2023, the price target progressively dropped from $144.6 to $125.

The Analyst Price Target slightly fluctuated between January 20, 2023, and February 17, 2023, before reaching an increase to $130 by February 24, 2023.  It then remained stable at $130 from March 3, 2023, to May 19, 2023. Lastly, from May 19 to June 14, 2023, the Analyst Price Target decreased to $125. Over the entire period, the Analyst Price Target for DIS declined by approximately 44%, placing greater emphasis on recent data.

Analyzing Disney’s Share Price: A Rollercoaster Ride from December 2022 to June 2023

The data for DIS’ share price exhibits a general upward trend from December 2022 to May 2023 with some fluctuations. The share price growth rate accelerates from January to February 2023, followed by a deceleration until June 2023. Below are the details:

• December 16, 2022: $89.86
• December 23, 2022: $86.76
• December 30, 2022: $86.32
• January 6, 2023: $91.45
• January 13, 2023: $96.92
• January 20, 2023: $100.02
• January 27, 2023: $107.23
• February 3, 2023: $109.74
• February 10, 2023: $111.27
• February 17, 2023: $106.99
• February 24, 2023: $101.29
• March 3, 2023: $99.62
• March 10, 2023: $98.28
• March 17, 2023: $93.11
• March 24, 2023: $95.32
• March 31, 2023: $96.88
• April 6, 2023: $99.65
• April 14, 2023: $100.14
• April 21, 2023: $99.27
• April 28, 2023: $99.33
• May 5, 2023: $100.27
• May 12, 2023: $98.14
• May 19, 2023: $92.16
• May 26, 2023: $89.52
• June 2, 2023: $88.59
• June 9, 2023: $91.89
• June 13, 2023: $93.25

In summary, DIS’ share price experienced an upward trend from December 2022 to May 2023, with the growth rate experiencing acceleration and deceleration until June 2023. Here is a chart of DIS’s price over the past 180 days.

Unpacking Key POWR Ratings Trends: Disney’s Growth, Sentiment, and Stability

DIS has an overall D rating, translating to a Sell in our POWR Ratings system. DIS’ D rating places it in the lower tier of the Entertainment – Media Producers category.

Out of the 14 stocks in this category, DIS ranked #9, indicating that it performs better than a few stocks but inferior to the majority.

It is worth noting that over the weeks leading up to June 13, 2023, DIS’ POWR Ratings grade predominantly fluctuated between “D” and “C,” with its rank in the category peaking at eight and dropping to as low as 13.

In analyzing the POWR Ratings for DIS along six dimensions, we will focus on the three most noteworthy dimensions: Growth, Sentiment, and Stability. Between December 31, 2022, and June 13, 2023, here are some of the key highlights:

• Growth: Ratings increased significantly from 42 in December 2022 to 78 in March and April 2023 and then decreased a bit to 57 by June 13, 2023.
• Sentiment: The rating for Sentiment showed a clear upward trend until March 2023, reaching a high of 81. However, it declined to 41 by June 13, 2023.
• Stability: Stability ratings have generally fluctuated within a range of 50 to 61, with the highest rating of 61 observed in April 2023 and the lowest rating of 50 in February 2023.

Stocks to Consider Instead of The Walt Disney Company (DIS)

Other stocks that may be worth considering are Endeavor Group Holdings, Inc. (EDR), Lizhi Inc. (LIZI), and Tencent Music Entertainment Group (TME) — they have better POWR Ratings.

What To Do Next?

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DIS shares were trading at $92.13 per share on Wednesday afternoon, down $1.72 (-1.83%). Year-to-date, DIS has gained 6.04%, versus a 14.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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