Decline of 44% in Growth Share Worth Considering for Purchase Immediately
With the major stock markets trading close to their all-time highs, some investors might find it challenging to locate suitable spots for investing their accumulated wealth. It's not uncommon to think that promising deals are hard to come by in today's market.
However, I'm encouraging you to maintain an optimistic outlook. In fact, investors currently have an excellent opportunity to acquire a growth stock that's trading approximately 44% below its peak. Here are the essential details.
Profitability in Streaming
Investors should give some thought to picking up shares of Disney (DIS -0.47%). This renowned media and entertainment enterprise lost credibility from Wall Street due to the decline of traditional TV, a historically lucrative business sector.
The surge of streaming services has fuelled the ongoing cord-cutting craze, causing a decrease in the number of households subscribing to conventional cable TV packages year after year. The negative impact on Disney's earnings and revenue has been significant.
But as the world adapts to an era dominated by direct-to-consumer (DTC) streaming entertainment, Disney has stepped up its technology and content investments to adapt. The company's stock has been subject to intense selling pressure during this period of profit losses.
Brighter days seem to be on the horizon. Disney's Q4 2024 financial results showed a company moving in the right direction. Revenue experienced a 6% year-over-year increase, while operating income grew 23%. However, these initial figures gloss over the underlying developments.
For the fiscal fourth quarter, Disney's DTC operations (including Disney+, Hulu, and ESPN+), which will play a significant role in future performance, reported a substantial increase in operating income – up from a loss of $387 million in Q4 2023 to $321 million. This accomplishment is high on the executive team's priority list.
Disney+ (excluding Hotstar) saw an addition of 4.4 million net new subscribers and a rise in prices, resulting in a 13% growth in revenue for the overall DTC division. Strict control of spending enabled the bottom line to stay flat year over year. It's encouraging to observe revenue growth despite similar expenses, indicating the value Disney provides to viewers.
The leadership team typically does not provide guidance years in advance, but this time they did. They expect DTC operating income to reach $1 billion in fiscal 2025, a significant increase from the $143 million reported for all of fiscal 2024. For fiscal 2026, the company aims to achieve a 10% DTC operating margin.
It's not difficult to imagine this business maintaining ongoing DTC sales and earnings growth. No company in the industry can match Disney's intellectual property, with beloved characters and stories capturing the hearts of a global audience. Offering bundled streaming packages is another strategy to enhance subscriber growth and engagement while keeping churn rates under control.
Executives also plan to sensibly increase prices on streaming services, which they can easily utilize. The launch of a standalone ESPN streaming service in the fall of 2025 will further satisfy the needs of an entire family, covering children's programming, educational documentaries, general entertainment, and live sports.
Disney's Valuation
I've explored the potential of Disney's streaming operations for long-term investors. This is a significant growth opportunity the company is currently tapping into.
However, it's important to remember that Disney has a successful Experiences division, encompassing popular theme parks, cruise lines, vacation properties, and consumer products. For the past five fiscal years, this sector saw revenue and operating income increase by 30% and 37%, respectively. Management's intention to invest double the capital expenditures to $60 billion over the next decade underlines their optimism.
Investors are only being asked to pay a forward price-to-earnings ratio (P/E) of 21.3 to purchase Disney shares at the moment. This is a slight discount in relation to the overall S&P 500. Considering the addition of Disney stake to your portfolio might be a wise move.
Given the current lower-than-peak price of Disney's shares, this could be an excellent opportunity for investors looking to dive into the world of finance and investing. With Disney's ambitious plans to increase its spending on technology and content, as well as its anticipated growth in DTC operations, investing money in Disney could potentially yield significant returns.
Moreover, Disney's robust Experiences division, which includes successful theme parks, cruise lines, vacation properties, and consumer products, has consistently shown strong revenue and operating income growth. Considering these factors, investing in Disney's shares might be a strategically sound decision for individuals with an interest in finance and money management.
