In Search of a Fairytale Ending: Disney Stock Declines in 2023 But Could Fortunes Be About to Change?

Hindered by underwhelming franchises, lower theme part attendance, and a declining TV market, Disney stock has struggled severely in 2023. But could 2024 offer new hope? 

There’s no stock quite like Disney (NYSE: DIS) on Wall Street. But for a company that has significant market penetration throughout the world of hospitality, streaming services, merchandising, cinema, and traditional television to name a few, storm clouds have been circling for some time. 

The extent of the stress that Disney is under has seen a major $7.5 billion cost-cutting plan kick into gear in a bid to curb spending and consolidate stocks.

These significant cuts have come as Disney has shed more than 50% of its stock market value in the wake of a brief March 2021 peak and initial post-pandemic market recovery. 

The stock was further burdened by the news that even Disney-owned sports network ESPN had been struggling to keep up with competition from rivals like Amazon, with Disney’s sports division reporting a fall in revenue and profits for the year. 

Quantifying a Poor 2023

Disney’s underwhelming 2023 was cemented when Universal claimed top spot for the highest grossing movie studio over the course of the year, taking in a global total of $4.91 billion over Disney’s $4.83 billion.

This lost ground will hurt Disney, which has claimed the top global grossing box office each year since 2016. 

Crucially, Disney’s poor year was underlined by the performance of The Marvels, which recorded the weakest opening ever for the Marvel franchise and took two months to surpass $205 million in the box office. 

In addition to this, Disney’s video streaming service, Disney+, is struggling to make an impact in a congested market with almost 6.5% of all subscribers opting to cancel the service on a monthly basis. 

Looking to Disney’s stock, the firm’s price-to-earnings ratio divided by annual growth rate (PEG) is 1.67, suggesting that the market has overvalued the stock in relation to its projected earnings growth. Where a PEG ratio of one represents a perfect correlation between these metrics, 1.67 points to a significantly overvalued stock in relation to its performance. 

Worryingly, projections for 2024 indicate that the ongoing Hollywood strikes will create a larger impact on the domestic box office for the year ahead, indicating that sales could dip from $9 billion in 2023 to $8 billion for the year ahead. 

The Battle Against Activists

In recent months, Disney has been locked in the midst of a battle for power, where CEO Bob Iger has been under pressure from billionaire activist Nelson Peltz. 

Activist investors typically seek to gain seats on a company’s board of directors in a bid to gain a controlling stake as a means of making wholesale changes to its focus and objectives. 

Activist hedge fund Blackwells Capital, which has supported Pelz’s attempts to gain control of Disney, suggested that “bringing all shareholders a real and better choice for directors is the necessary act that will support the future success of Disney.”

However, following the backing of shareholder firm ValueAct Capital Management, it appears that Iger has secured sufficient support to continue at the helm of the company. 

Although the pact with ValueAct suggests that Iger will continue with Disney’s bold $7.5bn cost-cutting strategy, the prospect of overcoming the threat of activist investors may help to deliver some much-needed stability for the entertainment leader. It may also suggest that Disney is set to turn a corner for the year ahead.

Brighter Future for Streaming Ahead?

The performance of streaming service Disney+ has been a key issue for Disney stock in the post-pandemic years. Following an initial period of rapid growth, the streaming service has struggled to sustain momentum in recent years. 

Disney has prioritized making its streaming services profitable by the end of 2024, which is a feat that would have a direct impact on Wall Street. 

In what may be a watershed moment for Disney+, a new ad-based subscription format has been added at a lower cost to help onboard more customers. 

While Disney’s direct-to-customer streaming segment brought a $4 billion operating loss in 2022, losses fell to $2.6 billion in 2023. Now, with deficits shortening to $387 billion in the latest quarter, it appears that Disney could be on course to turn its streaming service profitable in the second half of 2024. 

In addition to this, Disney+ has been included in a streaming bundle offer from telecom giant Verizon, which has announced a $10 package that also includes Netflix and Warner Bros. Discovery’s Max ad-based streaming services. 

This bid to make streaming services more accessible could be a key draw for customers in what may provide a timely boost for Disney+. 

Disney Prospects Bright for Long-Term Holds

Disney’s return to its former glories on Wall Street depends on the company recapturing stability in the face of activist investors and a changing entertainment landscape. However, the leadership of Bob Iger could help to bring more optimism to the stock over the long term. 

“While historical performance might not position Disney as an attractive investment, the company's recent initiatives and the confidence in CEO Bob Iger's ability to steer the company in the right direction suggest a favorable long-term investment opportunity,” explains Maxim Manturov, head of investment research at Freedom Finance Europe.

“The combination of Disney's brand loyalty, continued efforts to adapt to industry changes, and strategic cost management could contribute to its sustained growth in the future.”

There’s little doubt that Disney is currently at a crossroads in terms of operations. The stock’s improvement on Wall Street may depend on Disney’s output over the coming months and years. In the wake of a fall in sales for the blockbuster Marvel franchise, the onus will be on more creative cinematic projects that resonate with viewers in the future. 

Should Disney deliver box office hits by 2025, we’re likely to see greater investor optimism return to the stock as a result. This means that any forecasts for Disney’s stock will be heavily dependent on Iger’s vision for the future.