No stranger to plot twists, Walt Disney Co (NYSE:DIS) did George Lucas-level work changing the narrative of its fourth-quarter earnings miss this week, announcing a new streaming service that will be cheaper than Netflix (NASDAQ:NFLX). For a couple days at least, the news helped Walt Disney stock bounce back after a slight dip.
But is streaming video enough to improve the long-term outlook for DIS?
Rollercoaster Year for Walt Disney Stock
It’s been an up-and-down year for DIS stock, which rose as high as $115 in April and dipped as low as $96 last month. In the aggregate, Disney stock is down about 1% in 2017. The seesaw behavior in DIS accurately reflects investors’ confusion over what to do with a company that is making a killing off its Marvel and Star Wars franchises but whose ESPN property is in a downward spiral brought on by rampant cord cutting, trimming its subscriber count by 13% over the last six years.
Maybe the new streaming service will break the tie. After all, it’s something completely new that could serve as a more positive distraction from the increasingly stale movie studios vs. ESPN narrative that has haunted Disney of late. The company did not specify when it plans to launch its new streaming service, but if you’re reading tea leaves, the company plans to pull all its movies from Netflix starting in 2019, thus delivering a double-blow of sorts to the online-video king.
Disney said its streaming service will be “substantially cheaper” than Netflix, which is raising its prices yet again. However, its library of movies and shows will be much more limited even with decades of Disney content at its disposal, including all its Marvel movies and TV shows and the new Star Wars movies (the next of which hits theaters in December). Like Netflix, the yet-unnamed Disney streaming service will create original content, which will include a live-action Star Wars show, a High School Musical show and a Monsters, Inc. adaptation.
Pretty exciting stuff.
Is it enough to excite investors about Walt Disney stock? So far, yes. Disney stock was up 4.5% on Thursday and Friday, though part of that bump was due to the simultaneous announcement of a deal to make three more Star Wars movies on top of the current new trilogy. The dual announcements were certainly orchestrated to distract from Disney’s latest earnings report, which featured the first annual profit drop since 2009, and the news that ESPN is planning another round of layoffs next month, as its subscription numbers continue to dwindle.
In essence, the last few days at Disney have been a microcosm for the current state of the company: there’s a lot to like and a lot not to like, with certain aspects (i.e. its film studios and theme parks) of the business flourishing, but others (its television properties, including ESPN, ABC and Freeform) weighing it down.
DIS Might Not Budge Until Growth Returns
With that Jekyll-and-Hyde persona, the tie-breaker has to be the bottom line — is the company growing? Right now, the answer is no. Better things are expected next year, when analysts project 11% earnings-per-share growth. If Disney can figure out how to put a tourniquet on its ESPN problem, the future looks quite bright for Mickey Mouse.
Until then, I’d expect more seesawing from Walt Disney stock. A streaming service and three more Star Wars movies are nice, and the latest Star Wars film hitting theaters next month should help too. But a sustained rebound in DIS could be at least three months away, when the company releases its next set of earnings.
If the company grows EPS by more than the 7% analysts are projecting, that might be something investors can latch on to in a more permanent way.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
