DIS

Practical experience has vividly shown that making a choice in favour of Netflix rather than Disney stocks in the streaming segment proved itself perfectly, after the House of Mouse wasted nearly 10% of its market value despite the same 10% better-than-expected quarterly profit indications. Disney posted EPS (earnings per share) of $1.21 vs consensus estimate of $1.10. The Wall Street crowd, including reputable traders at big investment houses, are seemingly in no hurry to pick up the troubled asset from its lows around $105 per share, even though some time has passed after the disappointing move. Meanwhile, it took only a couple of trading sessions in late April for an initial and notable bounce for the shares of Netflix in a somewhat similar situation when the stock suddenly dropped from $600+ to below $550. Since that moment, Netflix climbed by more than 12.5% to fully close the price gap, as most investors kept their face in a growing money flow from shared accounts and engaging content on the world's largest commercial movie platform. At the same time, too many observers and shareholders still doubt the Disney Co's ability to maintain positive cash inflows in total from all of its online channels, while its traditional TV business and box office collections in the cinemas showed weakness.

Disney was struggling to adapt its business to the so-called consumer migration process when viewers went from cable TV channels to various formats of streaming entertainment. However, its combined streaming business with Disney+ and ESPN+ is still non-profitable, losing $18 million during the first three months of 2024. This is some improvement compared to the previous year when the streaming division spent $659 million instead of earning money. If so, the market's patience may run out just about now. "We've said all along that our path to profitability will not be linear," Disney CEO Bob Iger admitted last week. After his coming out of retirement to renew the corporate policy at the end of 2022, he faced many challenges from investors, which led to $7.5 billion cost cuts, yet the crowd may feel that saving alone is not enough. Disney would reduce its output of Marvel content, moving to two TV series and three movies in a year to "focus on quality". Iger announced a 10-year, $60 billion investment into Disneyland parks, which may be considered as a bailout plan, but markets prefer to wait and see, being not so sure it is going to be effective.

Disney+ was established only several months before the corona pandemic started to compete with Netflix, which happened to be much more smart in this field to grow financially. Disney+ just managed to attract another 6 million customers in Q1, and its average revenue per user grew to $0.44, yet this was not enough to become profitable, and Disney+ also had to launch a special lower-priced plan for enhancing the number of customers in India. Additional need to stream cricket in this country raised costs to lead to another loss in Q2, as it may "swing back to a profit the following period", Disney's CFO Hugh Johnston commented. The company said that the combined streaming unit should generate a "fiscal fourth-quarter profit" to become a "meaningful future growth driver for the company, with further improvements in profitability for fiscal 2025". Theme parks are classified inside the Disney's Experiences division, which reported operating income of $2.3 billion, a 12% increase from the previous year. Yet, Hugh Johnston mentioned "some evidence" that the trend is beginning to fall from its recent peak.

The company itself sees EPS to grow by 25% during this fiscal year, which is higher than its own prior forecast of a 20% increase, based on possible improvements from the theme parks and the streaming business. Yet, the market was not ready to respond immediately. Coleman, a senior executive vice president and chief human resources officer at Walt Disney Co just sold 4,400 shares of the company's stock on May 9, at a price of $106 per share. The transaction has decreased Coleman's direct holdings in the company to zero. Even though she still indirectly holds 856.76 shares through The Walt Disney Stock Fund. This may be considered as a negative insight into prospects on the company's current valuation.

Perhaps, I will refrain from buying Disney in such situation despite much cheaper price levels, while I intend to keep holding Netflix for as long as possible, as it clearly thrives on this competition. For Netflix, $800 (+30% more to the current price) is the first but not the eventual target in my mind.