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Disney shares slide, company is 'in the middle of a recovery'

·5 min read
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Disney (DIS) shares tumbled on Friday after reporting disappointing fiscal second-quarter results, with revenue and new Disney+ subscribers coming up short and the company's theme parks business posting a fourth straight quarterly loss. 

Shares of the Dow-component were down as much as 5.4% at session lows Friday morning, which would represent the stock's worst day since June 2020. 

"Disney’s in the middle of a recovery. I think what you’re seeing in terms of the stock performance is, Disney over the last 12 to 15 months has essentially decoupled from its earnings," LightShed Partners media analyst Rich Greenfield told Yahoo Finance on Friday.

According to Greenfield, the weak Disney+ subscriber additions were the key catalyst for Wall Street's negative reaction to the results. The streaming platform had been a major source of strength for the company over the course of the past year, with growth in Disney+ compensating for declining traffic at Disney's lucrative theme parks. 

That streaming momentum, however, appeared to decelerate this year. The company added 8.7 million subscribers in the first three months of the year, bringing its total Disney+ subscriber sum to 103.6 million. That was shy of the 110.3 million the Street had been expecting, according to Bloomberg data. 

"Investors are basically giving it credit for a full recovery from the pandemic from a theme park standpoint, and even from a movie standpoint. And so the stock has really risen over the last year primarily on one thing, which is investor excitement that [Disney+] can be the next Netflix, or that they can be a direct-to-consumer streaming success led by Disney+ globally," Greenfield added. 

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Even given Friday's drop, shares of Disney were still up more than 60% over the past 52 weeks, outperforming against the S&P 500's 46% gain over that time period. Shares of the entertainment giant have fallen about 5% for the year-to-date, however. 

"This is really all about Disney+," Greenfield said. "I think the question a lot of investors are going to be asking is, did the same pull-forward we saw at Netflix, was there a lot of pull-forward at Disney? And does that mean slower growth over the next 12 months? And I think that’s why the stock is selling off here. It is just not the direct-to-consumer growth story that people were hoping for coming out of earnings." 

Like Disney, Netflix also posted weaker-than-expected subscriber growth in its latest quarter, suggesting consumers were already being lured away from at-home activities like streaming during the post-pandemic recovery. Netflix added only 3.98 million paid subscribers in its first quarter, or sharply below the 6.3 million expected, and guided below consensus estimates for current-quarter streaming additions.

Other analysts, however, encouraged investors not to focus narrowly on the second-quarter slowdown in Disney+ subscribers. And Disney's stock decline could serve as an entry point for investors looking ahead to longer-term growth prospects.

"It’s a buying opportunity for long term investors. Anybody who is focused on Disney+ instead of what’s happening to Disney the company is missing the whole boat," Ross Gerber, president and CEO of Gerber Kawasaki Wealth and Investment Management, told Yahoo Finance Live. "Disney+ is at 100 million + subscribers. This is way ahead of anybody’s expectation because of the pandemic. And now we’re getting the benefit of the parks opening, and mask requirements are being removed … I think we’re going to see this in the theme parks."

"Disney is about to embark on a very, very profitable future over the next several years," he added. "For a long-term investor, this is a great opportunity for a stock like Disney."

Streaming wars 

With the rise of streaming platforms over the past couple years, Disney+ has been viewed as one of the most formidable competitors to Netflix given its rapid growth. But Disney still has a key disadvantage compared to the legacy streaming platform, Greenfield said. 

"It’s funny, so many people just look at sort of, hey Disney has 100 million subscribers in 16 months. Look how fast they’ve done this. Netflix is at 200 million subscribers and they’ve been at this for a decade plus," he said. "But that doesn’t really tell the whole story. What people miss is that Netflix has a $12 a month ARPU [average revenue per user] and Disney has an under $4 a month ARPU. In most of Asia, Disney actually just gives Disney+ away."

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"I think Netflix is the big winner," he added. "Yes, they have two times the subs, but they have five to six times the revenue. That gives them a tremendous amount of power to acquire content, to invest in content."

"I think Disney’s in a very good position relative to other media companies," Greenfield said. "But I do think Netflix ends up being a meaningful winner when you look at their positioning now." 

Still, Disney has been inking new deals to try and boost content offerings across its streaming platforms, which also include ESPN+ and Hulu. The company said Thursday it secured a new seven-year deal with Major League Baseball and an eight-year agreement with Spain's La Liga soccer league, which will air on ESPN and ESPN+. And the company is still targeting reaching as many as 260 million Disney+ subscribers by the end of fiscal 2024. 

Shares of Disney commanded 26 Buy and Buy-rating equivalent recommendations, 6 Holds, and 1 Sell among Wall Street analysts as of Friday, according to Bloomberg data. 

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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