Disney reported its Q2 FY’24 results, showing a 1% year-over-year revenue increase to $22.08 billion and better-than-expected earnings of $1.21 per share. However, the stock fell by close to 10% due to a weaker-than-expected third-quarter outlook for its experiences segment. The theme park business has been a key driver of Disney’s revenue growth, with experiences revenue rising by 10% in Q2 to $8.4 billion. However, the company anticipates higher expenses and a normalization in attendance in the next quarter.
Despite challenges in its linear TV business, Disney’s streaming business is performing well, with Disney+ and Hulu turning profitable in Q2. Disney+ saw a growth in core subscribers by more than 6 million, leading to a 13% increase in total streaming revenue to $5.64 billion. Operating income for the streaming segment improved to $47 million from a loss of $587 million in the prior year. Despite the positive performance of the streaming business, Disney’s stock has declined by 40% from early 2021 levels to around $105 currently, underperforming the broader market in the last three years.
The Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk. With the uncertain macroeconomic environment characterized by high oil prices and elevated interest rates, the question arises whether Disney will face a similar situation as in previous years and underperform the S&P 500. However, there is optimism about Disney’s stock, which remains down by over 45% from its 2021 highs and trades at about 23x forward earnings. Trefis values Disney stock at approximately $137 per share, about 30% higher than the current market price.
Despite concerns in the streaming and media operations, there is a positive outlook for Disney stock as the company focuses on restructuring its business and cutting costs to boost profitability. The stock is considered undervalued in the current environment, with potential for a recovery. Disney’s efforts to unlock more value and improve profitability, combined with its valuation at a significant discount from its recent highs, support a positive outlook for the stock. Investors are advised to consider the factors affecting Disney’s valuation and revenue streams before making investment decisions.
