What happened
It's been a rough year so far for Walt Disney (NYSE: DIS) investors. After huge gains during the height of the pandemic, Disney's shares have come crashing down by 37.7% since the beginning of this year, according to data provided by S&P Global Market Intelligence.
Investors are, of course, pessimistic about stocks in general right now, but Disney's drop has been the result of disappointing financial results in the company's latest quarter, rising costs for Disney+, and concerns that high inflation will continue to eat into consumers' purchasing power.
So what
Investors need only to look at the company's second-quarter financial results to see where the company is stumbling right now. Non-GAAP (adjusted) earnings in the quarter were $1.08, below Wall Street's average estimate of $1.19 per share.
Image source: Disney.
While the company's theme parks were still in demand during the first half of the year and its Disney+ streaming service grew to an impressive 137.7 million total subscribers, the service is also costing the company a pretty penny to run.
Disney's direct-to-consumer segment (which includes Disney+) lost a total of $887 million in the second quarter -- much larger than its loss of $290 million in the year-ago quarter. And growth could be slowing for its beloved service as well.
Disney's chief financial officer, Christine McCarthy, indicated on the earnings call that Disney+ growth could slow in the second half of this year, saying, "we did have a stronger than expected first half of the year" and that "The delta we had initially anticipated may not be as large."
That's not what investors wanted to hear, especially as the streaming service has been viewed by investors as an integral part of the company's future.
Now what
The bigger picture for Disney and its investors is how inflation -- which is at a 40-year high -- could continue to impact the company. Rising costs are certainly bad for Disney, but worse yet could be a pullback from customer spending, just as Disney's parks were hitting their stride again.
That pessimism toward the immediate future is what's keeping Disney's stock price from rebounding right now, though long-term investors may want to look past the recent sell-off and instead keep a five-year timeframe (or longer) in mind when thinking about Disney's opportunities.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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