Few of the world’s most iconic businesses walt disney company (DIS -0.15%)With a vast library of intellectual property and theme parks around the world, Disney has brands that are second to none. Before 2020, the stock market was also a Disney fan. From 2010 to 2019, Disney stock S&P 500 Almost 160%.
Since the start of the pandemic, the story has become more of a nightmare than a Disney fairy tale. From the beginning of 2020 to today, Disney stock is down his 25% and the S&P 500 is up his 31%. This change of fortune makes sense given the impact of the pandemic on Disney’s theme parks and the bear market that has dragged down most stocks.
But Disney may be poised for a better 2023, and this undervalued stock is worth considering for investors.
old is new again
The biggest news of late is the return of Bob Iger as CEO. In November, it was announced that Iger would return as his CEO and that his hand-picked successor would replace Bob Chapek. The whole process was messy and drama-filled, but the difference in track record between the two leaders is undeniable.
During his first term as CEO from 2005 to 2020, Iger made some key decisions. The acquisitions of Marvel and Lucasfilm, as well as the creation of Disney+, all happened during his Iger tenure. The timing of Mr. Chapek’s promotion to his corner office was less than ideal given that Disney faced its biggest challenge ever, the pandemic.
That aside, Iger’s previous success has given some investors hope that his return can help Disney get the ship right and the stock back in the right direction.
momentum in the park
The closure of Disney’s theme parks and other facilities has hit business hard, but the segment is slowly making a comeback. A 36% increase year-on-year. This was the slowest pace in several quarters, but that was due to the tough year-over-year comparisons. Revenue increased 99% in Q4 2021.
More important to Disney’s bottom line is improved operating margins for the Parks division. In the fourth quarter, this metric increased him 136% on top of his triple-digit growth in the same period last year. This was ultimately key to his $162 million net profit result for Disney, which barely creeped into profitability in the quarter.
Theme park performance is important to Disney, but the media and entertainment segment accounts for the majority of the company’s revenue. The main product in that segment is the Disney+ streaming service. The growth of Disney+ continues to be impressive. He ended the fourth quarter with 164 million of his Disney+ subscribers, up 39% from Q4 2021. Amazon’s (NASDAQ:AMZN) prime video, and netflix (Nasdaq: NFLX).
Subscriber base growth remains strong, but this segment of the business remains a drag on profitability. Disney had to spend a lot of money on content to drive subscriber success. However, in its fourth-quarter earnings call, management said Disney’s direct-to-consumer (DTC) segment had peaked in operating losses. Operating expenses are expected to decline over the next several quarters, eventually becoming profitable. This will be aided by the new ad-based subscription tiers rolled out in December.
I think 2023 could be even better than Wall Street thinks.With Disney’s Shanghai park closed for a while, theme park revenue could rise if China continues to reopen. there is. On the streaming side of the business, any reduction in operating costs can bring significant benefits to your bottom line.
Disney is trading at twice its sales next year. That’s a bit of a bargain considering the historical price-to-sales ratio is 2.5. Only time will tell what 2023 will look like, but in the long run I think buying Disney at a price below its historical valuation is a smart move for investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeff Santoro has held positions at Amazon.com and Walt Disney. The Motley Fool has positions in and endorses Amazon.com, Netflix and Walt Disney. The Motley Fool recommends Walt Disney’s January 2024 $145 long call and Walt Disney’s January 2024 $155 short call. The Motley Fool’s U.S. headquarters has a disclosure policy.