As we close out 2021, investors who came into the year with high hopes for entertainment king Disney (NYSE:DIS) have had them dashed. Disney stock is down 12% in 2021 at the same time that the S&P 500 is up 28%. That's a lot of confidence in the overall market, which contrasts sharply against Disney's gloomy year. But the dawn of a new year means the possibility for change, and Disney's prospects look brighter than ever. It can be challenging to see your investments plummet, but the worst thing Disney shareholders can do right now is sell at a loss. Hold on tight, and this time next year, things might look very different.
Why it looks bad right now
Disney's been having trouble since the pandemic started, but interestingly enough, its stock soared 24% in 2020, when things really were bad. Things started to turn around toward the end of the year as restrictions loosened and parks began to reopen, and Disney+ was a huge success that year.
Image source: Disney.
By the time 2021 rolled in, it looked like some of that confidence was premature. Parks continued to reopen, but they're still functioning at limited capacity, and the Disney+ launch hasn't been as strong as analysts projected. Also, several films slated for release were postponed due to delays in production due to COVID-19 restrictions. Disney's most recent earnings report, for the fourth quarter ended Oct. 2, demonstrated a further climb back to growth, with a 26% year-over-year increase in revenue. But it was still 3% below the 2019 number.
Disney+ eked out a 2.1 million increase in subscriptions over the third quarter, but the parks, experiences, and products segment remained 18% below 2019 levels.
Why it looks good going forward
None of this should scare Disney shareholders when considering the bigger picture, which looks strong. Management didn't change its goals to have 230 million to 260 million Disney+ subscribers by 2024, and it's continuing its rollout into 50 new countries in 2022. It also expects Disney+ to become profitable in fiscal 2024. And that doesn't even take into consideration Disney's other streaming channels, Hulu and ESPN+, which together make up a powerhouse assembly of streaming services. Disney expects all three to collectively reach 300 million to 350 million subscribers by 2024. By that time, Disney definitely has a shot to overtake streaming leader Netflix as the company with the most subscriptions.
Disney's film production has also been hampered by the pandemic, but prior to 2020 lockdowns, it produced most of the highest-grossing films in the industry. The situation is still unsettled, but when it does go back to normal, Disney studios should return to creating more blockbuster films. And with the company's restructuring last year, it now has a range of directions in which to take its creative output, from theaters to streaming to traditional television.
Parks and experiences will add a lot of revenue to the total once they're functioning normally again as well. Until the pandemic closed them down, parks and experiences represented the largest segment by total sales. It may be eclipsed by the new media and entertainment distribution segment, which combines pretty much all of the other segments into one, but sales should still rocket back.
Finally, Disney has two elements that make it a great stock to own. One is its content library, which is unmatched and lends itself to all sorts of money-making projects in both content extension and experiences. The other is the large scope of its business, which is why it continues to make money despite restrictions.
Should you sell your Disney stock?
It can be hard to see your stocks lose value. But if you sell your Disney stock now, you'll be missing out on the company's amazing future opportunities. If you bought a long time ago, you'll have made some impressive gains, but selling now would be a squandered opportunity. If you bought recently, you might be selling at a loss, which can be a setback for your retirement account. Unless you need your funds right now for an emergency, the worst mistake would be to sell and take a loss when gains could be just around the corner.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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December 30, 2021 at 09:15PM
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