What's Holding Disney (DIS) Back From Marching Ahead?
Zacks Investment Research | Nov 29, 2016 04:03AM ET
The year 2016 is turning out to be an eventful year for Media companies with stocks like Comcast Corporation (NASDAQ:CMCSA) , Twenty-First Century Fox, Inc. (NASDAQ:FOXA) , Time Warner Inc. (NYSE:TWX) and The Liberty Media Group (NASDAQ:LMCA) trading in the positive territory.
However, The Walt Disney Company (NYSE:DIS) stock, whose shares have gained more than 170% in the past five years, is trading sideways in 2016. So far in the year, the shares of this media behemoth have decreased 5.8%, underperforming the Zacks Categorized Media Conglomerates industry, which has showcased an increase of 5.9%.
Keep reading to find out what are the factors holding back Disney’s shares this year.
ESPN: Cause of Worry
For some time now, declining subscriber count and higher programming costs have been a cause of concern for investors. Disney’s ESPN has been under immense pressure as the Pay-TV landscape continues to change, owing to migration of subscribers to online TV. Falling subscriptions will have a telling effect on the network’s ad revenues. In the reported quarter, ESPN’s ratings were impacted by change in time of bowl games.
ESPN has been losing subscribers on a regular basis. It lost nearly 3 million subscribers over the past one year as the number of cord cutters continues to increase. At the end of the fourth quarter of fiscal 2016, ESPN had a subscriber base of nearly 89 million in comparison to 92 million at the end of the prior-year quarter.
However, Disney is striving to bring back ESPN’s golden days. In an effort to attract online viewers, the company has inked a deal with video streaming, data analytics as well as commerce management company BAMTech. Further, the company has the option to acquire majority of the stake in BAMTech, in future. It said that it will use BAMTech to create an ESPN-branded, over-the-top video streaming service that will cover a variety of sports.
Disney is putting a lot of effort to make its content accessible to more customers. It said that AT&T’s DirecTV will feature channels like ESPN, ESPN2, ABC, Freeform, Disney Channel, Disney XD as well as Disney Junior in their subscription packages in the upcoming DirecTV Now OTT service.
Hold onto Disney
In contrast to this the company’s reviving strategy to save ESPN, the company’s movie and Park & Resorts business continue to shine. After the grand success of Star Wars Episode VII: The Force Awakens, animated movie Zootopia fueled growth. The Force Awakens which garnered $2 billion at the box office became the third highest grossed movie of all time.
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Fiscal 2016 has been a magnificent year for the company’s movie business. The company released four movies which surpassed $1 billion at the box office namely The Force Awakens, Captain America: Civil War, Finding Dory and Zootopia. Additionally, Jungle Book did excellent business at the box office with worldwide collection of $966 million. We believe that the studio will continue with its success story beyond Star Wars and Zootopia as it boasts of an impressive lineup of big budget movies up to 2017.
Disney’s Parks & Resorts division continues to impress investors. Disney is focused on deploying its capital toward expansion of the Parks and Resorts business, consequently, increasing its market share and creating long-term growth opportunities.
Disney’s Parks and Resorts segment is once again expected to deliver growth in 2017 due in part to the opening of Avatar Land at Walt Disney World as well as a complete year of results from Shanghai Disney Resort, which opened in the mid of 2016. Disney is in the process of rolling out more themed attractions in parks and resorts.
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