Disney is arguably one of the best stocks in the market today. However, their stock is currently trading at an incredible discount as investors fear the worst from ESPN. Recent research showed that entertainment habits among consumers are changing; and it’s becoming a major fear among Disney investors. Today, we’ll discuss how those habits are changing, how it affects Disney, what we saw in the market as a result on Wednesday and what we can expect to see moving forward. So, let’s get right to it…
How Consumer Entertainment Habits Are Changing
The advent of the internet has changed quite a bit in the day to day lifestyle of the average consumer. These days, we don’t have to go to the library to find books, we don’t have to turn on the radio to listen to music, and we don’t have to turn on the TV to watch video; the internet has changed all of that. While streaming entertainment continues to grow in popularity, it’s creating major issues for the providers of other entertainment services like cable television. The reality is that with so much entertainment just a click away, the average consumer is dialing down on the cost of entertainment through other avenues; including paid subscription television.
How This Affects Disney
Disney is an incredibly profitable company. However, their most profitable franchise is a sports television network known as ESPN. Unfortunately, as consumers change their spending habits with regard to entertainment, it’s causing a major problem for Disney. The bottom line is that fewer people are subscribing to ESPN; which can have a major impact on the company’s bottom line. As a matter of fact, Nielsen released a research note estimating that ESPN has realized a decline of 3.2 million subscribers in just over 12 months. Even though the flagship channel still has more than 90 million subscribers overall, the massive decline is a big problem!
How The Market Reacted To The News
As one would expect upon the release of bad news about any publicly traded company, Disney had an incredibly bad day in the market on Wednesday. Throughout the trading session, the stock fell from its previous close at $121.74 per share to $110.48 per share; a decline of 9.21% in a single trading session and a loss of $11.21 per share.
What We Can Expect To See Moving Forward
Moving forward, several experts are expecting to see more declines. However, I have a far more bullish opinion on the stock. While I can see more declines in the short term, in the long term, I don’t think that Disney is going to feel the major ill effects that some analysts are calling for. Here’s how I see it…
- Short Term & Fear – One thing that any investor or trader should remember is the fact that fear is a primary driver with regard to price movement in the market. The bottom line is that one of the biggest fears among human beings overall is fear of loss. As a matter of fact, it’s actually been stated that when a loss happens, people suffer twice as much as they feel happy when gaining something. Therefore, in the short term, I am expecting for fear to drive more losses; as much as I hate to say it. However, in the long run, I have a much more positive outlook…
- Long Term & Profit Sustainability – In the long term, fear is more or less out of the picture. After all, fears tend to subside with time; at which point, people look at the facts. When it comes to Disney, those facts are astonishing. The reality is that while ESPN has seen declines in subscriptions, their subscriber base is still massive. However, my bullish opinion goes far beyond ESPN. The reality is that unlike many other companies, Disney doesn’t depend on a single product or even a small group of products. In fact, Disney is a diverse company with several products and services that have proven to be overwhelmingly profitable over time. So, while ESPN may have hit a slight bump in the road, that’s not the case for several other areas of Disney’s business; many of which have the ability to pick up the slack that ESPN is leaving behind. Although fear may be driving things down at the moment, fear is a temporary feeling; however, solid statistics on the other hand don’t go away; and when it comes to Disney, solid statistics are definitely something the company has to show off!
All in all, I’m not happy to see the declines today, but I can understand them. More importantly, I don’t think that investors should be focusing so heavily on ESPN; nor do I believe that this is going to prove to be a major long-term issue. With that said, Wednesday’s declines brought Disney’s price down substantially; leading to an incredible discount for those looking for solid long term gains.