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There is no magic for Disney investors

netflix stock (NFLX) it has plunged more than 40% this year, ahead of its first-quarter earnings release after the closing bell on Tuesday. Meanwhile, the actions of Disney (DIS) they are down nearly 15% so far in 2022. That makes Disney one of the worst performers on the Dow, which is down just 4% this year.

Both companies have been plagued by concerns about streaming competition and the fierce battle for subscribers.

Inflation is also a problem. A recent report from the UK showed that consumers are cutting back on streaming services due to concerns about rising prices, with UK customers abandoning Disney+ at a faster rate than Netflix and from amazon (AMZN) Main video. (Disney also owns Hulu and sports streaming service ESPN+.)

Despite Disney’s huge library of movies and shows thanks to its own branded studio, as well as Marvel, Pixar and Star Wars creator Lucasfilm, investors are concerned that this abundance of content won’t fuel the growth of the company. streaming subscription enough to make up for the slowdown in your traditional streaming. and cable television companies.

“Disney+, Hulu and ESPN+ have the scale and management conviction to become a massive global streamer over time,” JPMorgan analyst Philip Cusick said in a report on Tuesday. But he added that “this is not necessarily as good a business as Disney used to be on television.”

Traditional media companies like Disney used to rely much more heavily on cable companies’ lucrative ad sales and affiliate fees to carry their channels, but the shift to streaming has changed that model. Investors are now more interested in streaming margins and not just the bragging rights that come from the number of subscribers a company has.

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“The market appears to be outpacing rewarding media companies, as it did in 2020 and 2021, simply because of its forecast for future streaming subscriber growth,” Michael Nathanson, an analyst at MoffettNathanson, said in a report last month.

“It now appears that investors are looking further down the income statement, and also finally digging into the cash flow statement, to try to determine the underlying steady-state profitability of the pivot toward Direct-to-Consumer content delivery.” added Nathanson. .

Nathanson lowered his price target on Disney in March from $165 a share to $150 due in part to concerns about lower profit margins.

Florida controversy remains a problem for Disney

Disney has also come under fire after CEO Bob Chapek initially refused to speak out against Florida’s “Don’t Say Gay” bill, which bars schools from teaching students as young as kindergarten. through third grade on gender identity and sexual orientation.
Following criticism from Disney workers, Chapek ultimately condemned the law. But some Republicans are now threatening Disney with boycotts, while many Democrats feel Chapek’s response came too late, pining for the days of former Disney CEO Bob Iger, who was a more outspoken advocate for progressive causes.

Whether or not the Florida controversy is having any real impact on Disney+ subscriptions, movie and theme park attendance, and the ratings of Disney-owned ABC and ESPN is up for debate.

However, one analyst noted that the “Don’t Say Gay” issue could also hurt the company in another way, if Hollywood’s more liberal celebrities decide not to work with the House of Mouse.

“The most important [Disney] asset is your brand, next is your talent. If the controversy leads to the loss of key creative talent, that would be a distinctly negative,” Loop Capital’s Alan Gould said in a report earlier this month.

Whatever happens, it’s clear Wall Street isn’t happy with Disney’s performance since Chapek replaced Iger in February 2020.

Disney shares are now near their lowest levels since November 2020. Chapek has undoubtedly been dealt a bad hand since the start of his tenure coincided with the start of the Covid-19 pandemic in the United States, an event which led to a dramatic slowdown in tourism and leisure activities like going to the movies.

Disney should have a great 2022 at the box office

But some are hopeful that Disney may soon turn things around.

Michael Morris of Guggenheim Securities wrote in a report late last month that the parks’ business should rebound thanks to new attractions such as “Star Wars: Galaxy’s Edge” and “Avengers Campus,” increased visits from foreign travelers. to the major tourist centers of Orlando and California and a complete reopening of international parks and cruise lines.

And JPMorgan’s Cusick singled out Disney’s strong slate of movies this summer and later this year as a positive.

Box office receipts should start to pick up thanks to the upcoming releases of Marvel’s Dr. Strange, Thor and Black Panther sequels, Pixar’s “Lightyear” film about the inspiration behind the popular “Toy Story” character. first sequel to the 2009 hit “Avatar” (“Avatar 3” will follow in 2024).

Disney’s Marvel, along with its partner Sony, has already proven that movie fans will return to theaters in droves to see blockbusters. Last year’s “Spider-Man: No Way Home” is the third-highest-grossing film in US history.