One of the reasons Disney stock is falling today

stock walt disney (NYSE:DIS) trended lower Tuesday after the media and entertainment company reported mixed second-quarter results. Although it exceeded profit estimates due to cost-cutting efforts, it fell short of sales estimates.

Investors viewed this as a negative, as Walt Disney stock fell about 8% shortly after opening.

a magical run

Walt Disney advertises its Disneyland theme park as “the happiest place on Earth,” and investors have been pretty happy with Disneyland’s stock lately. The company was the best performer on the Dow Jones Industrial Average this year, up 28% year-to-date (YTD).

Management won a two-year proxy battle against activist investor Nelson Peltz, who lost his bid to secure a board seat last month. In addition to that win, Walt Disney stock is rising for a variety of reasons related to improved performance following significant cost cuts and solid revenue growth.

But expectations may have been too high, at least from a revenue perspective, as Disney missed its sales forecasts in the second quarter of the fiscal year that ended March 31. Disney reported $22.08 billion in revenue for the quarter, up from $21.8 billion. It hit $1 billion in the same quarter a year ago, down from $23.5 billion the previous quarter. The company’s revenue was also slightly below analysts’ expectations of $22.12 billion.

Once again, the Experience segment led the way, with revenue increasing 10% year over year to $8.4 billion. This segment includes Disney’s theme parks. The sports division was also solid, with sales increasing by 2%.

What may have disappointed investors was the company’s entertainment division, which includes its film, streaming and TV assets. Entertainment segment revenue decreased 5% year over year and 2% quarter over quarter to $9.8 billion. More specifically, the Disney+ streaming business reported fewer subscribers than Wall Street analysts expected, reaching 153.6 million compared to the expected 154.5 million.

This reaction seems a bit exaggerated to me. Overall, the number of Disney+ subscribers increased by 3% compared to the previous quarter, and the number of Hulu subscribers increased by 1%. Direct-to-consumer streaming revenue increased 13% year-over-year, reaching $47 million in revenue. That’s up from a loss of $587 million a year ago and a loss of $216 million last quarter.

In fact, streaming has been a bright spot for Walt Disney, compared to a 40% decline in revenue for its film division and an 8% decline for linear networks.

“Our results were largely driven by our Experiences segment and our Streaming business. Importantly, entertainment streaming was profitable in the quarter and we remain on track to achieve profitability in our combined streaming business in the fourth quarter,” CEO Robert Iger said in the earnings call.

highest estimated revenue

Meanwhile, Walt Disney’s profit numbers continued to impress, with massive cost savings improving its bottom line.

Disney reported a total net loss of $20 million compared to net income of $1.3 billion in the same quarter a year ago, but took a $2.1 billion hit from one-time restructuring and goodwill impairment charges related to a joint venture involving Star India. I wore it. property.

On an adjusted basis, Disney beat estimates with adjusted earnings per share of $1.21, up from 93 cents in the second quarter of 2023. This represents an increase of approximately 30% year over year and is significantly better than the estimated adjusted EPS of $1.10. .

Today’s sell-off seems like an overreaction as Disney remains on track to achieve profitability in its streaming business this year and is expected to realize $7.5 billion in annual run rate savings in 2024. However, this may be related to the fact that: Disney has become overvalued due to its recent rally, and its P/E ratio is currently very high at 71.

So, while I think Disney will have a lot of growth going forward, its current valuation seems a bit high.