Disney Stock Has a Lot to Prove This Week

Wall Street’s loving Mickey Mouse these days. Shares of Walt Disney (NYSE:DIS) hit another all-time high on Monday. Investors won’t have to wait long for the next big test after hitting a new high-water mark: Disney reports fresh financials shortly after Thursday’s market close.

There’s a lot riding on the fiscal first-quarter report, but if you’re expecting strong top-line growth and buoyant profitability, you’ll be disappointed. Everyone knows Disney isn’t at its best right now. Revenue will go the wrong way. There’s only a slim chance that the media giant is back in black on the bottom line, as shuttered attractions and rising costs to keep Disney+ booming will gnaw at modest positive net income elsewhere.

It’s OK if the quarter itself proves challenging. Cheese-chasing investors have their eyes on the prize. Right now, the winning trophy has nothing to do with Disney’s income statement, the closure of Disneyland, or an empty slate of near-term theatrical releases.

Mousetrap

Disney shares have more than doubled since bottoming out 11 months ago. The mother of all media stocks just cracked the list of the top 15 most valuable companies by market cap among stateside-trading investments.

The headline numbers won’t be pretty. The $15.9 billion that analysts see on the top line will be nearly 24% below where it landed a year earlier. The bottom-line target is a loss of $0.42 a share, more than double the deficit it posted just three months earlier, when the pandemic seemed even bleaker.

Unlike this week’s stock chart, we’re not at peak Disney. Half of its global theme park resorts are currently closed. It’s been almost a year since Disney had a theatrical release. Its cruise ships are anchored. Disney still has its media networks and an unmatched catalog of content. It also has the streaming services — Hulu, ESPN+, and, more importantly, Disney+ — that have fueled the stock’s ascent to new heights.

For investors, it may very well be the numbers of Disney+ that matter more than the media empire as a whole. Disney+ has turned heads since its launch 15 months ago. The platform had 86.8 million subscribers as of early December. Where are we now? Disney+ was amounting to just 7% of its fiscal fourth-quarter revenue. Where is it now? Average revenue was slipping as the platform expanded into India and other markets with lower price points. Where is it now? With a price hike on the way, will the trend of shrinking average revenue per user reverse sooner rather than later?

How popular was the second season of The Mandalorian? Now armed with a larger audience on Disney+, is WandaVision faring even better? We can ignore the top-line dip. Disney will bounce back. Disneyland, cruise ships, and movie theaters that screen Disney films will likely be back in business later this year. Disney’s back-to-back quarterly losses will soon fade in the rearview mirror (in the worst-case scenario) or look necessary to catapult Disney+ (in the best). Disney has to earn all of its recent upticks, but with momentum on its side, it probably will.