Run — Don’t Walk — Away From Disney Stock

DIS stock - Run — Don’t Walk — Away From Disney Stock

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It’s a terrible time to own The Walt Disney Company (NYSE:DIS) stock, and that’s understating the situation. The luster has faded from the company’s Disney+ streaming service and investors are finally realizing the truth of what I’ve been saying for years: Disney+ is a money-losing business that faces incredibly intense competition.

The streaming channel is finally being seen as the liability it is instead of a life saver for DIS stock. Meanwhile, the company’s largest business is cable TV, which continues to rapidly lose subscribers.

Making matters worse, Disney has — probably unnecessarily — become deeply embroiled in a hugely controversial political and cultural debate in the U.S. As a result, the firm has likely alienated millions of its core customers: American parents. Not only that, but as a result of this controversy, Disney will, in all likelihood, face major financial and legal headaches for the foreseeable future.

As a result of these points, I urge all investors to sell DIS stock.

No More “Emperor’s New Clothes” for DIS Stock

It took bad results from Netflix (NASDAQ:NFLX) and a giant stock correction, but the Street is finally seeing that Disney+ is the opposite of a highly valuable asset for the company. In fact, the unit has historically lost a great deal of money.

Apparently, the company no longer provides the operating income of its Direct-to-Consumer unit, which is dominated by Disney+. But indicating that the streaming channel is still weighing on the company’s bottom line, the operating income of its Media and Entertainment Distribution unit sank to just $808 million in fiscal first quarter, down 44% from the $1.45 billion that it generated during the same period a year earlier.

Additionally, as Netflix’s results showed, the streaming-channel business has become highly competitive.

Florida Controversy

The Florida Parental Rights in Education Bill prohibits all “classroom instruction” related to “sexual orientation or gender identity” of children who are in kindergarten to third grade. Whether that is a good thing or a bad thing is far beyond my purview and expertise.

But without a doubt, the law is very controversial. Multiple polls suggest that a majority of Americans support the legislation. Indeed, according to one poll cited by The Wall Street Journal, “Democratic voters […] support the law 55% to 29%.” Moreover, 67% of parents back the law.

So, for a company whose main customer base is parents of young children, to fight tooth-and-nail against the legislation is unwise. Apparently, Disney Chief Executive Officer Bob Chapek decided to take the position due to pressure from Disney’s employees.

Now, the conglomerate has apparently lost its special tax and legal status in Florida. As a result, it’s likely to pay significantly higher taxes, have much less control over the fate of its parks and other assets in the Orlando area and be involved in a legal battle that could distract a number of the company’s top executives.

Given all of Disney’s problems, it’s clearly best for all investors to sell DIS stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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