This Could Be Huge for DIS Stock
Walt Disney Co (NYSE:DIS) is in the news again. Despite posting good quarterly numbers, Disney stock had taken a beating last month and has been on a downtrend ever since, due to negative sentiment.
However, the mood might turn upbeat if the company announces its next big move and conveys clear plans as to how it will shift to the emerging new realm of digital media.
Reports are coming in that Walt Disney Co is working with a financial adviser to arrive at a possible bid for Twitter Inc (NYSE:TWTR). (Source: “Disney Is Working With an Adviser on Potential Twitter Bid,” Bloomberg, September 26, 2016.)
So what makes the company a better suitor for Twitter than Salesforce.com Inc. (NYSE:CRM) or Alphabet Inc (NASDAQ:GOOG)?
Disney is the quintessential media giant. Disney Chair and CEO Bob Iger has taken the company forward with the bold moves of acquiring Pixar Animation Studio, Lucasfilm Ltd., and Marvel. However, the company has also recently opened a theme park in Shanghai, which is likely to adversely impact Walt Disney’s bottom line and hit DIS stock, due to the large costs associated with it.
Analysts have not been happy about the declining number of cable subscribers, along with the rising programming costs at ESPN. And this trend is likely to continue as Walt Disney invests heavily in order to gain market share. This is the prime reason why Disney stock has been going down.
This brings into picture the other recent investments that the company has made for growth. Disney Chief Bob Iger has invested in technology-related media businesses, namely Hulu, LLC; which is a video streaming service; Vice, which is a digital media company; and Major League Baseball’s MLBAM, LP, which provides a platform for online video services.
What is the objective of investing in these new-age companies? Let’s go back to August, when the company announced its third-quarter results and Iger said, “We think that in today’s world having the ability to stream on a scaled basis live sports and live programming is a competitive advantage and something that is necessary.” (Source: “Disney earnings: $1.62 per share, vs expected EPS of $1.61,” CNBC, August 9, 2016.)
Disney stock had shown a good uptick for a brief period, after which the stock has been consistently coming down. Disney stock has done well over the past five years. However, going forward, the company might need a major growth plan up its sleeve.
Chart courtesy of StockCharts.com
With the recent National Football League (NFL) streaming, it has become clear that Twitter may no longer be just a micro-blogging platform. By moving into live streaming of sports, shows, and other events and forging new partnerships, Twitter is moving toward being a media company, which makes a stronger case for Disney to look seriously into the opportunity to buy it.
For Disney, Twitter is a new platform for media, sports, and news. Twitter might be a way for the company to not only acquire a more economical platform for content streaming, but also add a potential high revenue stream as well. Twitter’s presence on mobile devices will help further Disney’s mobile growth strategy. Having a mobile product that gives direct access to a dedicated fan base is definitely the way to go for any media company, and Walt Disney is no exception. This is what will determine the growth of DIS stock in future.
The markets will be closely watching Bob Iger’s every move. He is not afraid of challenges, and he has conveyed the message that digital expansion is the future of the company. If Iger is able to boost Twitter’s ad revenues and utilize its assets well, it would be a big positive for the Disney stock.