The last twelve months have been tough ones to be a Walt Disney Co (NYSE:DIS) shareholder. The Walt Disney stock price has fallen 22% since the third week of November 2015, and given how its television division continues to flounder, one has to wonder if the misery will ever end even though the company continues to be a box-office and theme parks hero.
And yet, the worst of the worst-case scenario may have been more than realized, and marked into the value of the Disney stock price. All it needs to rebound is the right nudge … and that starts with convincing the market its television division isn’t dead in the water.
Disney Stock: No Blood Left to Give?
CNBC’s Heidi Chung may have said it best by succinctly opining last week “The company’s stock has suffered from a decline in ESPN ratings and cord-cutting, but with earnings next week it could be a case of so bad it’s good.”
Her general assessment is on target, in premise, though it doesn’t do the company’s internal disparity justice. Walt Disney is a walking, living contradiction of the upmost extreme, with its film division flying high and its TV efforts — mostly ESPN — in shambles.
The most recent round of scores from television-ratings service Nielsen is a microcosm of the issue: ESPN lost 621,000 subscribers last month. Granted, most cable venues lost viewers as the cord-cutting movement continues to roll. ESPN’s deterioration seems to be particularly hasty though.
Walt Disney, via ESPN’s spokespeople, protested the scope of the shrinkage. As Pivotal Research Group’s Brian Wieser pointed out though, that size drop for one month wasn’t anything unusual.
It’s a microcosm of the pain Walt Disney stock holders have been suffering for too long now.
And that pain has been very real in a fiscal sense. Although only rough estimates, at an approximate value — revenue — of $7 per month per ESPN subscriber and a likely loss of another 3 million cable subscription customers this year, Disney has left behind another $252 million worth over the course of the last twelve months. It’s worth noting, however, that DIS has been losing cable subscribers at a pretty good clip for years now, with no end in sight.
Movies Can’t Carry the Weight for DIS
Ironically, while television remains a headwind for the company, Disney continues to find massive success on the silver screen. Case in point: Its most recent Marvel Comics flick, Dr. Strange, pulled in $325 million on a global basis over the course of its debut weekend. That’s not Star Wars big, but it’s huge all the same.
It’s also a microcosm of how well it’s done with films of late. Over the course of the past four reported quarters, movie revenue is up 28% versus the previous four-quarter period.
There’s an underappreciated issue with the impressive growth of the film business, though. That is, it’s still only a fraction of the size its media business is. Theme parks aren’t quite as big for DIS as television is, though its parks contribute a top and bottom line more like its television division than its movies arm.
The specifics tell the tale. Over the course of the last 12 months, the company’s film division has only generated $9.4 billion in revenue. Its TV media arm drove $23.8 billion worth of sales. Its theme park and resorts segment added $17 billion to the top line for the 12-month stretch.
In other words, even when its film business is firing on all cylinders, it still doesn’t matter much.
Bottom Line for Walt Disney Stock
While Walt Disney remains a multi-faceted company, the only thing that matters from this point forward (until further notice) for Disney stock is TV, and ESPN in particular.
It can’t abate the cord-cutting movement; there’s no point in trying. It can, however, do the next best thing with its television content, which is move deeper into the online streaming market.
And to some extent it’s doing just that. Its partial ownership of over-the-top television service Hulu gets a finger in that pie. It’s also now offering subscription-based online access to ESPN programming. Those are flawed movements for Walt Disney stock though.
The digital version of ESPN doesn’t carry the big events one can watch on ESPN delivered through a cable service provider, and while Hulu is a respectable effort, it’s also playing a distant runner-up to rival Netflix, Inc. (NASDAQ:NFLX) on that front. Never even mind that fact that Walt Disney is only one of a handful of Hulu owners.
All the same, with the Disney stock price within sight of new 52-week lows thanks to an overzealous effort from the sellers, an entry sooner than later is still a compelling, risk-adjusted prospect. Indeed, DIS doesn’t even need to fully create a fix for its biggest division to reignite bullishness for its stock — it only needs to convince the market that it can do so, just to stop the bleeding.
That’s still a tall order for Walt Disney stock, but no headwind lasts forever.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
