Disney Stock Is At A Record Low And Things Look Bad

Disney stock has dropped by 13%, making investors worry about the trajectory of the company.

By Charlene Badasie | Published

The Walt Disney Company has a massive profit problem which has caused its stock value to tumble. The company closed mid-week trading at $86.75 per share, down more than 13%, Deadline reports. The record slump comes as investors react to the entertainment giant’s disappointing quarterly earnings report and weak earnings forecast.

The single-day drop was the biggest for Disney stock since March 2020, when it also lost 13% due to the global pandemic. So far, the company’s shares have fallen more than 43% in 2022 compared with a drop of less than 10% for the Dow Jones Industrial Average. Although the entertainment firm achieved record sales during its latest financial year, executives shocked investors with their forecast for segment operating income.

According to Market Watch, Disney executives anticipated a high-single-digit rate of stock growth on the metric in the new fiscal year. But this was much lower than analysts were expecting. Michael Nathanson, an analyst at MoffettNathanson said the 2023 forecast was far below Wall Street’s consensus of 25% and his outlook of 34%. “Rarely have we ever been so incorrect in our forecasting of Disney profits,” he wrote in a note to clients.

disney 1001 nights

He added that since Disney’s confidence that Theme Park trends are resilient, it seems that the cause of the stock downgrade is direct-to-consumer losses and significant declines at Linear Networks. As a result Nathanson, who maintains a neutral rating on Disney shares, lowered his 12-month price target by $30, to $100. Guggenheim analyst Michael Morris also kept his “buy” rating. But he slashed his stock price target by $30 to $115 in a report titled “These Are Not the Results You’re Looking For.”

Meanwhile, Jessica Reif Ehrlich of BofA Securities described the fiscal quarter as “tough.” However, she was more optimistic about Disney’s stock than her Wall Street colleagues. She reiterated her “buy” rating and only trimmed her 12-month price target to $115 from $127. Despite the profitability slump, the Disney+ streaming service is still doing well, adding 12.1 million subscribers to its total of 164.2 million in the three months that ended in September.

The streamer also beat Wall Street’s expectations as its overall membership passed 235 million, with Hulu adding 1 million and ESPN+ adding 1.5 million. But the losses for Disney+ still doubled year-over-year to $1.47 billion which weighed heavily on its bottom line, The Hollywood Reporter says. However, addressing the company’s fiscal fourth-quarter earnings, CEO Bob Chapek said its losses have peaked and that Disney stock would become profitable in the 2024 financial year.

“We believe we are on a path to a profitable streaming business, assuming that we do not see a meaningful shift in the economic climate,” Chapek said via BBC News. Despite his optimism, finances were less positive on the traditional television front. Linear Networks revenue for the quarter decreased 5% to $6.3 billion while operating income increased 6% to $1.7 billion, which directly impacted Disney stock on Wall Street.

According to Deadline, the biggest lagging component of the Linear Networks unit was international channels, whose revenue decreased by 18% to $1.1 billion. Operating income was also down 18%. Disney blamed the downturn on lower operating income from channels that operated for the entire current and prior-year quarters, partially offset by a benefit from channel closures, which also affected its overall stock value.