The optimism around Disney stock is too much right now. Things don’t look as good in the long term. Here’s why.
Sentiment levels for Walt Disney Co (NYSE:DIS) are at all-time highs and for good reason – the company smashed the $3 billion per year mark in studio revenues. Rogue One, Finding Dory & Captain America: Civil War were the stars of the show reeling in over $1.3 billion in revenues between them.
I was decidedly bullish on Disney a couple months back when the share price stooped to around $90 a share. The main reason for the poor share price performance up to that point was the company’s poor ESPN performance, although revenues in this division have stayed buoyant (due to advertising rates) despite meaningful fall in subscriber levels.
However, the street seemed to value this stock differently when Walt Disney Co (NYSE:DIS) announced its fiscal fourth-quarter results last November. Up to the fourth quarter, the stock was getting hammered due to poor performance in media despite strong studio performance. Nevertheless, revenues climbed to $55.632 billion in fiscal 2016, and strong growth is expected for the next few years. Therefore value investors decided to step in a few months back and have been handsomely rewarded. The question that remains now is if this rally still has legs. I’m not so sure and would be recommending that investors take some profits off the table. (See Also: Can Walt Disney Co (NYSE:DIS) (DIS) Stock Rally Despite ESPN Woes? )
Disney Is Beginning To Narrow Its Film Range By Concentrating Only On Blockbusters
The risk I see with Disney’s studio division going forward is that it is becoming very reliant on both the Star Wars franchise, as well as the Marvel franchise. Further, four Star Wars films (1) are set to be released by 2020, which illustrates Disney’s intentions to keep piggybacking on the franchise’s success. I don’t feel that the loss of Carrie Fisher will be a main issue but the lack of diversification across its studio franchises could enable competitors to gain market share here. At present Lucasfilm and Marvel are doing excellently, but will it last, especially, when you consider that many films in this space will be sequels? Disney is banking on interest not waning in its blockbusters. This heightens the risk and of course the reward respectively.