"Avatar", which premiered in 2009, earned $2.74 billion worldwide, becoming the highest-grossing film in history. It seemed that the latest instalment of this film, 'Avatar: The Way of Water', which is over three hours long, would be similarly or even more successful. The studio predicted that the film would earn between US$ 135 million and US$ 150 million on its opening weekend. In the meantime, it stood at around USD 100 million. Disney (Disney) shares have fallen by more than 4.5% since the beginning of the week. Is this a buying opportunity?
History of the Walt Disney Company
Disney is one of the world's most famous and respected entertainment companies, founded in 1923 by brothers Walt and Roy Disney. The company began as a small film studio, but quickly grew to produce animated films, television series and children's programmes.
In 1955, Disney opened its first theme parks, Disneyland in California, and a few years later, in 1971, it opened Walt Disney World in Florida. Today, Disney owns several theme parks around the world, as well as many other companies in the entertainment industry, such as film studios, television and radio stations, and companies that produce toys and other children's products, valued for their quality and for inspiring and cheering up people around the world.
In November 2019, the company launched the 'Disney+' streaming platform, which provides access to a variety of film and TV content. It includes films, series, TV shows and animation from a number of well-known brands such as Disney, Marvel, Star Wars, National Geographic and Pixar. It appears that the company has now set its sights on significant growth on this platform. The service has more than 164.2 million subscribers compared to Netflix's (Netflix) 223 million subscriptions, which now seems to be the company's biggest competitor.
Source: Conotoxia MT5, Netflix, Weekly
Financial situation
The company's revenue grew by 23% year-on-year. The number of new subscribers on the 'Disney+' platform grew by more than 39% year-on-year, compared to Netflix, for which this growth was 4.2% year-on-year. According to the company's CEO Bob Chapek: "2022 was a strong year for Disney. We saw sizable subscription growth in the fourth quarter, adding 14.6 million total subscriptions, including 12.1 million Disney+ subscribers. Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating
incredible content and rolling out the service internationally, and we expect our DTC (direct-to-consumer) operating losses to narrow going forward and that Disney+could still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate."
It appears that Disney could not return to previous levels of profitability since the launch of the service. Currently, the company's net margin ratio is 3.8% (it was 22% in 2019) compared to Netflix's 16%. One could conclude that the company is currently focused on growing the platform even at the expense of profitability. However, it is hard to predict when this trend would change and what results we could expect.
What does Wall Street think of Walt Disney's share price?
According to the Market Screener portal, the company has 30 recommendations, and among them, the predominant one reads: "Buy". The average target price is set at USD 124.05, 44% below the last closing price. The highest target price is at USD 177 and the lowest is USD 94, which is below the last closing price.
Source: Conotoxia MT5, Disney, Weekly
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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