Media companies are seeing a lot of earnings reruns lately and they're offering a cautionary lesson.
For instance, after recent disappointing results from Netflix (NFLX), Disney (DIS) shares fell sharply in sympathy since video streaming has become a big part of its business.
“Since unveiling streaming in 2019, Disney has pursued the Netflix strategy and investors expected the stock would gain the associated market premium that Netflix has enjoyed,” Real Money Columnist Brad Ginesin wrote. “Instead, in the wake of Netflix's disappointing outlook for subscriber additions, Disney was dragged down ... on guilt by association.”
To be sure, Ginesin wrote that back in January. But after Netflix's latest results, the same scenario played out.
At the time, Ginesin argued that the slide offered an opportunity. “This sets the shares up for a rebound when fears regarding Disney+ subscriber growth abate and Covid-affected business segments recover,” Ginesin wrote. “With the most robust intellectual property in the entertainment business, Disney has yet to fully leverage brands across their multiple distribution platforms.”
Even so, investors can be confident that as competition intensifies in streaming, Disney will be a long-term winner due to the superior content created in their studios.
“Disney maintains pricing power in streaming, recently raising the price of a Hulu bundle, and there's likely room to increase Disney+ as more content is added in years to come,” Ginesin said.
Of course, the world has changed a lot in the past three months. Of particular concern with Disney is the growing impact of covid-related shutdowns in China, home to two of Disney's theme parks, as well as growing signs of recessions in Europe and potentially the U.S.
But for those taking a long-term view, the good news is that Disney shares are now even lower than they were in January.
