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Walt Disney awaits recovery

Last year looked like a year of rebound but optimism about reopening faded.

2023 should be a better year for Walt Disney Co.

Last year looked like a year of rebound with resorts, theme parks and cruise lines reopening. People were returning to movie theatres and its Disney+ streaming service was a hit, surpassing Netflix in numbers of customers.

Better things lay ahead. But it didn’t happen as optimism about reopening was overrun by a global economic pessimism. Disney’s shares ended 2022 44% lower.

But there is plenty to be optimistic about.  Disney used the pandemic to make strategic investments that have boosted its competitive moat. It has an unrivalled film and TV library offering family friendly fare.

Here’s an update:

Walt Disney Co. (NYSE: DIS):  Recent price $113. (All prices in $US)

Background:  Walt Disney is a top global brand offering family-friendly entertainment with assets that include theme parks and resorts, a cruise line, ABC Television, cable TV stations such as ESPN and film studios that include 20th Century Fox and Pixar. Its streaming services include Disney+, Hulu, and ESPN+. 

Performance:  Disney’s shares hit a high of $197 in early 2021 as mid-pandemic enthusiasm for its Disney+ streaming service peaked. In 2022, they fell 56% from that peak, ending the year 25% below their recommended price. They have rebounded and are up 31% year-to-date.

Recent developments: In its fourth quarter, Disney’s net income from continuing operations rose 1% to $162 million. This was below Wall Street’s expectation as was revenue of $20.15 billion.


The main culprit was costs associated with Disney+. The streaming service has been enormously popular but the programming and technology to deliver it are expensive. Disney spent $33 billion on new content in 2022, including 50 feature films. Competition is stiffening from the likes of Paramount and Netflix. 

In the fourth quarter, losses in Disney’s Direct to Consumer unit, which includes Disney+, hit $1.5 billion even though Disney+ gained more customers than expected. The company says losses have peaked and the unit will be profitable within two years.

Disney reported per-share earnings of $3.53 for the year, excluding extraordinary items on revenues of $82.7 billion.

In November, investor dissatisfaction forced out CEO Bob Chapek. He was replaced by former CEO Bob Iger. Disney shares had their best day in almost two years.

Outlook: Disney’s longer-term picture is bright. The company has more than 235 million subscribers across its streaming services which surpasses Netflix. Pressure from activist investor Dan Loeb who owns 5.5 million Disney shares worth about $520 million is a good thing. It led to Bob Iger’s return and puts pressure on the Board. Loeb sees value in Disney and wants to see it realized. The bad news is out, the assets are best in class. 

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Adam Mayers writes about investing and personal finance. He is a contributor to the Globe & Mail’s Globe Advisor and a contributing editor to Gordon Pape's Internet Wealth Builder newsletter. Adam was Business Editor and investment columnist at The Toronto Star and is the author of six books.

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