DIS Stock Analysis: Can Disney Find the Magic Again?

Disney (NYSE:DIS) is in a place it is not very familiar with. While its theme parks have long been the mortar that held the Magic Kingdom together, its linear television business is in a difficult spot and until only very recently, its movies and streaming shows were a disaster. There is no telling if the House of Mouse can turn things around any time soon and Disney stock reflects that doubt. Shares are flat in 2024 and have fallen 24% from their recent high.

While the market is rotating away from former high-flying growth stocks, that is not a description that fits Disney. Shares have only gained 4% over the past year and it has actually lost nearly half its value over the past three years. In fact, for the past decade, Disney shareholders have only seen 6% returns. Although its dividend softened the blow a bit, Disney stock has not been a good investment.

It is why investors are worried about whether the entertainment giant can turn things around.

Getting Back to Basics

The return of Bob Iger as CEO was not the start of the revival that was hoped for. As he orchestrated most of what transpired that caused the company’s decline prior to leaving at the end of 2021, not much has changed since he returned. Arguably, it’s gotten worse.

Last year, Disney produced a string of movies that lost tens or even hundreds of millions of dollars for its movie studio. Its linear TV lineup of ABC, ESPN, and the Disney Channel, while valuable assets still, face a difficult future. Its one saving grace has been its theme parks and investors hope they can carry Disney a while longer until the company can straighten itself out.

Two hit movies this year, Inside Out 2 and Despicable Me 4 have been a much-need salve on the wound of the studio. The former has generated over $1.4 billion at the box office while the latter has earned over a half-billion dollars since its release earlier this month.

They show that Disney can still make good family entertainment. That’s key because for too long Disney was losing its connection to wholesome family fare. By becoming embroiled in the culture wars it risked alienating its target audience. It even attracted activist investors to change its course.

And though it hadn’t impacted its theme parks yet, its dwindling box office numbers ran the risk of causing a backlash against its profit center.

A Storm of Headwinds

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Disney still needs to prove its direct-to-consumer (DTC) lineup can succeed. While Hulu continues to grow, adding 2 million new subscribers over the past year, a 4% increase, and 8.6 million over the last three years, ESPN+ is a drag and Disney+ is still a question mark.

The streaming channel made a minor profit for the first time in the first quarter but the DTC business returned to its money-losing ways in the second. It recorded an $18 million loss for the period, though if you removed the sports channel it was operating in the black. 

Disney maintains DTC will be reliably profitable by the fourth quarter though it expects choppiness along the way. There are a lot of moving parts with its international business Hotstar that will affect how things fall out.

Yet despite Disney+ adding 6 million new subscribers in the second quarter, that was not organic growth. A partnership with Charter Communications (NASDAQ:CHTR) to offer free access to the streaming channel artificially boosted subscriptions. That has happened before when Disney had a similar deal with Verizon (NYSE:VZ) after launching the service. Once the free year ended, though, subscriptions fell. That will likely happen again.

The One Bright Spot for Future Growth

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Disney’s linear TV assets are not likely to see the same kind of profits they once did. They are still prize possessions but the media landscape has been irrevocably altered. And the entertainment company needs to find hit programming for streaming. The just-concluded first season of the spinoff show Star Wars: The Acolyte was the worst-rated Star Wars program of all time on Rotten Tomatoes.

That puts a heavy burden on Disney’s theme parks. The parks and experiences segment saw 10% growth in revenue and a 12% increase in operating income. We’re now in the prime summer months and they should continue to shine but it is not enough.

Disney used to have a magic formula for creating great movies that spun off into TV shows that were developed into park attractions. That is now broken. It is why Disney stock languishes.

Iger is leaving again in 2026. Disney might not make a U-turn before then. This could be as good as it gets for a while as the Disney brand is momentarily tarnished. While that is reflected in its stock price, I would not sell just yet. Because of the immense halo effect still surrounding the House of Mouse, it ought to survive this lull. That should lead it to come out better in the end and return to delivering outsized investor returns. Make the right play and grab Disney stock now.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.