Is Now the Perfect Time to Buy Disney Stock?

walt-disney (DIS 2.36%) suffered substantial financial losses during the COVID-19 pandemic, with its parks division losing $2.6 billion in operating income in the first quarter of 2021 due to closures. However, the company took the opportunity to double down on its flagship streaming service, Disney+, as it waited out the worst of the pandemic. As a result, Disney came out the other side with a booming streaming business and a promising return of theme park guests.

Shares of the company are still down 39% from last year as it continues to recover from its inevitable slump in 2020 and 2021. However, its overwhelmingly positive quarterly results in August and upcoming developments suggest investors should seriously consider buying shares. from Disney.

A better than expected quarter

On August 11, Disney pleasantly surprised investors by posting its fiscal third-quarter earnings. Subsequently, the company’s shares rose 13% as several of its segments outperformed. The most notable improvement came from Disney’s parks business, which saw revenue jump 70% year-over-year to $2.19 billion, allowing investors to breathe a sigh of relief as the company appears to be back on track. to the pandemic. CEO Bob Chapek said in an interview with CNBC about Disney’s third-quarter 2022 earnings that the increase in revenue from the company’s parks is not a one-time event, as he believes there is no reason for visitors to be withdraw soon.

In addition, Chapek further calmed investors’ concerns when he said that despite recent increases in the cost of fuel and airline tickets, the Disney parks have not seen “any weakening” in demand. The executive also noted that the company had yet to see an uptick in its international travel, with most of the third-quarter figures driven by domestic visitors. Disney’s positive outlook on its parks business is promising, with the segment accounting for 34% of its total revenue in the third quarter of 2022, and returning guests is crucial to the company’s future financial success.

In addition to the parks’ brilliant earnings in the third quarter of 2022, Disney’s overall revenue grew 26% year over year and 28% in the last nine months. The company’s third-quarter results suggest Disney is on the right track, having weathered the worst of the pandemic and now poised to win the streaming war.

Increased market share

Like several entertainment companies, Disney’s Q3 2022 streaming subscriptions were of particular concern to investors, and the House of Mouse did not disappoint. Disney’s stock surge in August was largely fueled by reaching 221.1 million streaming subscriptions worldwide on Disney+, Hulu and ESPN+, surpassing Netflix’s 220.7 million for the first time.

According to data from Antenna, Disney has the most streaming subscriptions of any service, with a 30% share as of Q2 2022 when Disney+ and Hulu members are combined. Netflix has the largest share of subscriptions from a single platform at 26%, but the number is down significantly from its 42% in Q1 2020. Disney has taken the streaming industry by storm, making Disney+ a formidable opponent for the industry giant Netflix in less than three years. .

While Disney impressively surpassed Netflix’s total paid subscribers in Q3 2022, its average revenue per user (ARPU) still lags considerably behind Netflix’s. For example, in the three months ending July 2, Disney+ ARPU in the US and Canada was $6.27 per month, while Netflix’s was $15.95. However, Disney has plans to rectify this with price increases across all of its streaming services and the addition of its ad-supported tier coming to Disney+ in December. Both moves will increase the company’s ARPU and significantly bolster its streaming revenues.

Are Disney Stocks a Purchase?

Despite a bright third quarter, Disney shares are still down 39% year-over-year and 29% year-to-date as investors wary after losses it suffered during the pandemic. However, its price-earnings ratio has fallen by 78% since September 2021, suggesting that its current price is a bargain.

With Disney expecting park attendance to maintain its current rate and the company just three months away from launching a lucrative ad-supported streaming tier on Disney+, now is the best time to invest in Disney. The House of Mouse could make significant profits in the coming quarters.

dani cook has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: $145 long calls in January 2024 at Walt Disney and $155 short calls in January 2024 at Walt Disney. The Motley Fool has a disclosure policy.

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