Walt Disney Co: Could This Be the Magic Formula for Disney Stock?

DIS StockDIS Stock Waiting for a Winning Strategy

Walt Disney Co (NYSE:DIS) stock has been hit in the past on the back of its ESPN woes. However, good news on another front has again brought the limelight onto the media conglomerate. Moreover, DIS stock has gained about seven percent over the past month.

Disney’s animated movie Moana continued to top the weekend box office figures for the second straight weekend. This continues the trend of a great year for Disney movies, as fans get ready for Rogue One: A Star Wars Story to hit the theaters on December 16. The sale of advance tickets already points to another hit for the company. But DIS stock continues to be under the ESPN dark cloud, despite its movies breaking all records at the box office. (Source: “Box Office: Walt Disney’s ‘Moana’ Sets Sail With $82M Thanksgiving Debut,” Forbes, November 27, 2016.)

Disney stock has been weighed down by ESPN troubles, as its subscriber losses have spooked investors. Other ESPN problems include increased costs for broadcast rights. If the company cannot find a way to address the issues at ESPN, then it must get ready to sell it off. This would provide the much-needed boost to Disney stock.

Disney’s other businesses, like theme parks and resorts, have performed not that badly. And, despite the company’s movie business doing great, with a number of blockbusters, investors chose to remain focused on its cable TV network ESPN. Disassociation with ESPN could lead Disney to focus on other high-growth business segments. DIS stock had grabbed headlines earlier on the rumors that the company was interested in buying Twitter Inc (NYSE:TWTR) and Netflix, Inc. (NASDAQ:NFLX).

Last Thursday, Sanford C Bernstein & Co LLC’s Todd Juenger expressed his opinion on Disney and Netflix, a subject which has been of continued interest to investors. The media analyst wrote an analysis of such a deal, although there are no reports of likely interest from either party. He said that he would welcome such a deal, and it would cost Disney $70.0 billion. (Source: “Disney shouldn’t  rule out buying Netflix for $70 billion to fend off demise of core business, Bernstein says,” CNBC, December 1, 2016).

This would help Disney phase out its core TV network businesses, which would happen anyway.  So it makes sense for Disney to own the winning solution. The essential question is: should Disney compete with Netflix by building its own platform or just spend $70.0 billion to buy the content-streaming leader? 

Disney stock has lost over 12% in the last year, which does not do justice to the company’s underlying strengths. However, the success of Moana and the company’s upcoming movies are likely to keep DIS stock buoyant for a while.