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It’s been a rough year and a rough week for Disney’s stock, even as Avatar: The Way of Water continues to bring in dollars at the box office.
Shares of Disney finished the year by closing at $86.88 on Friday, down less than 1 percent, in a welcome reprieve from the downward slump that began earlier this week, after the Avatar sequel performed well overall, but still below initial tracking expectations. The stock hit a new 52-week low this week and is down 44 percent over the past year. The decline contributed to making the worst year for Disney’s stock since 1974, per Dow Jones Market Data cited by The Wall Street Journal.
While Avatar has now cracked $1 billion, becoming only the sixth film to reach that milestone in its first 14 days, the big budget film had a more modest start than expected. The sequel opened to $135 million domestically, which would be a healthy debut for most, but came in below tracking estimates of $150 million to $175 million. The movie also had trouble in China, as the country experiences a rise in COVID-19 cases, and brought in $57.1 million, rather than the expected estimates of more than $100 million. On top of that, director James Cameron has said the movie would need to make around $2 billion to break even.
Disney’s stock is not alone in its pain. The S&P 500 is facing its worst annual performance since 2008. Many media stocks were also battered this year, as Wall Street turned its focus to profitability over subscriber growth and as advertising trends were impacted by the economy. Shares of Netflix have fallen 51 percent over the past year, after the streamer reported its first subscriber loss in more than a decade.
However, it has been a troubled year for Disney.
The problems began earlier this year, when Disney was thrust into controversy after management’s lack of response to the legislation known as the “Don’t Say Gay” bill in Florida and subsequent apology.
As one of many media companies contending with the high costs of streaming, Disney’s stock took a particular hit after the company’s fourth-quarter earnings results in early November, in which the media giant reported growth in streaming subscribers, but missed revenue expectations and reported higher streaming losses, even as management signaled this as the peak. Several analysts cut their price targets, in light of the growing losses and challenged linear business.
This was followed by cost-cutting measures, announced Nov. 11, in which then-CEO Bob Chapek said the company would freeze hiring and likely begin layoffs.
The biggest shake-up, of course, came later that month as Bob Iger returned as CEO. The move that initially sent the stock soaring and led MoffettNathanson analyst Michael Nathanson to upgrade the stock to outperform from market perform “to reflect our greater confidence in the company’s trajectory under the leadership of returning CEO Bob Iger.”
Since then, many investors are still waiting on the sidelines to see what changes will be realized, Wells Fargo Analyst Steven Cahall wrote Dec. 15. Shares have fallen 13 percent in the past month.
“We’d characterize investor sentiment around our DIS meeting as “highly interested” but not yet bullish,” Cahall wrote. “We think management is reviewing every part of the strategy since Iger’s resurgence. Investors think changes will be at the margins vs strategic near term (Iger has the same cards to play as Chapek did), but there could be a path to greater comfort on DTC profits and/or stronger FCF.”
For now, Cahall said he believes the focus will be on the same content rationalization and cost-cutting measures Chapek was eyeing. But looking ahead, Cahall is one of several analysts and investors who see spinning off of ESPN, and potentially ABC as well, as a strong possibility in order to allow Disney to move away from the linear business.
“We think Bob Iger is returning to DIS to make big changes. Spinning ESPN/ABC is the best path forward and we see it as a reasonably probable late-’23 event. Splitting would leave remaining DIS as an attractive pureplay IP company,” Cahall wrote.
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