Unless you live under a rock, you’re probably aware that Star Wars: The Force Awakens has taken the box office by storm. The recently-released franchise edition has been destroying Hollywood box-office records, bringing in $529 million in global ticket sales during the first weekend alone, and becoming the fastest film to reach $1 billion in box office sales.
It has folks applauding Disney’s film strategy, including the acquisition of Lucas Films on top of the previous acquisition of Pixar. You wouldn’t necessarily know it just by glancing at the stock of parent company Disney (DIS) of late, though.
In my opinion, that shouldn’t come as a surprise.
About a year ago, I argued that investors were, to a large extent, missing the point with Disney stock. Too many people were focused on the rising popularity of Frozen instead of the dwindling popularity of ESPN, which has been struggling. Even at that time, folks were already citing Star Wars as a bullish catalyst for Disney stock.
The huge hype around Star Wars was problematic on multiple fronts: For starters, it suggests that any type of Star Wars boost — which also includes the potential for merchandise, more movies, theme park rides and so on…all things that the hype machine is well aware of — has been built in to Disney stock. And once again, it wasn’t just factored in, it was overshadowing and distracting from the bad stuff going on.
Now, even in the wake of an even better-than-expected Star Wars debut, some bearish sentiment — read: all that bad stuff — is emerging around Disney.
It’s Been a Long Time Coming
I hate to say I told you so, but ESPN is the crux of it.
This not-so-hot aspect of Disney stock was brought to the forefront by prominent media analyst Richard Greenfield of BTIG Research, who just slapped the stock with a “sell” rating — a pretty notable call considering the general sentiment around Disney stock specifically and the tendency toward analyst “buy” ratings more broadly.
A well-known New York Times columnist summed it his thesis succinctly:
In a report titled “Even the Force Cannot Protect ESPN,” [Greenfield] argues that Disney’s successful film business, which includes Pixar, has distracted investors from an impending slowdown at ESPN as viewers cancel their cable subscriptions (the “cord cutters”) or never sign up for cable to begin with (the “cord nevers”).
The report notes the unbundling a-la-carte TV trend in the wake of cord-cutting, adding that it puts enormous pressure on films to be smash successes. Investors finally took note, as shares lost nearly 2% last week and have been dwindled by more than 10.25% in the last month.
While I’m often on the lookout for sell-off blips that spell opportunity, this is not one of them. It’s a downfall reflecting unbalanced sentiment that is finally shifting — with the negative sentiment stemming from a hurdle that will hardly be easy for Disney to clear.
As I said a year ago, the fact that Disney stock is swimming upstream against the cord-cutting mega-trend is enough for me to want to take my money elsewhere.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.