There have been some important wins recently.
It’s hard to think of a “top stock” that’s been doing as poorly as Walt Disney (DIS -0.68%) over the past few years. It’s down 48% over the past three years at the same time that the S&P 500 is up 30% despite being the largest and arguably most important name in global entertainment.
It finally looked like things were changing as Disney stock was outperforming the market for the first few months of this year, and then it tanked again after the second-quarter earnings report. But things are starting to look up. No, really. It’s making progress in several key areas, and it looks like Disney stock might already be past bottoming out.
Is it finally time to buy?
Streaming is making money
Since Disney is the leading entertainment company in the world, it only made sense that it would steamroll through streaming and capture market share. It has an unmatched content library that keeps getting bigger, with a world-class creative team behind its content development. It consistently accounts for the most high-grossing theater films in any given year, and it owns several mega-franchises that it recycles over and over again to engage fans and build loyalty.
It launched premium streaming network Disney+ almost five years ago, and it spent a lot of money rolling it out across the globe to compete with Netflix. Between marketing and content creation costs, though, it was in the red for far longer than investors were willing to tolerate. That was one of the main elements of the management shakeup in 2022 when Bob Iger returned as CEO and longtime CFO Christine McCarthy bailed.
Iger promised to get costs under control, and so far, he’s coming through. Management has reiterated several times over the past few years, including prior to Iger’s return, that streaming would become profitable by the end of fiscal 2024. Excluding the sports part, it was already profitable in the second quarter (ended March 30), and it’s on track to be fully profitable by the end of the year, as planned.
Back big at the box office
The other major win at Disney is at the box office. The first half of the year was a dud for Disney releases, but it just released what are on target to be the two highest-grossing films of the year.
Pixar’s Inside Out 2 was released in June with the highest-grossing opening weekend of 2024 at $155 million, and it’s already slid into first place for top-grossing film this year. It was followed up by Marvel’s Deadpool & Wolverine, which not only surpassed it with $205 million when it debuted last weekend, but it was also the highest-ever opening weekend for an R-rated film, and it’s already the fourth-highest grossing film of the year.
This is important for Disney for several reasons. One is that it demonstrates that its recycle, rinse, repeat strategy is still working; these are both based on existing franchises. It seems that the strategy itself may not have been the issue, but a lack of engaging content. Beyond that, it’s important for Disney’s sales, which were lackluster in the second quarter, up a mediocre 1%.
And it may not be over yet. Disney has three more films coming out this year, all of them based on previous hits. There’s a remake of Lilo & Stitch, plus Moana 2 and Mufasa: The Lion King. It also has several highly anticipated films coming out in 2025, including the live-action Snow White and the next installment of Avatar.
Should investors buy in?
Is all this enough to set Disney stock on the right path?
If you don’t have much risk tolerance, you might want to skip Disney stock right now, even with these positive updates. For everything that’s going right, and for all of its dominant brand and assets, it’s going to take some time to stabilize. I would suggest that even if everything continues to look up, Disney won’t be reliable enough until a new CEO takes over from Iger and the company keeps up a strong trajectory. That could be when he’s supposed to leave in 2026 or after.
But if you do have some risk tolerance, now could be a good time to take a nibble. Disney stock is just peaking from a low, and it trades at a forward 1-year P/E ratio of less than 17. More importantly, it’s on track to keep winning this year and hopefully keep moving forward.