Has Walt Disney Topped Out?

Dow component Walt Disney Co. (DIS) topped out just above 200 in March following a historic 257% advance off March 2020’s 6-year low. The stock has lost altitude since that time, despite the reopening of California Disneyland, moviegoers flocking back to multiplexes, and the success of highly-touted Disney+ entries “Loki” and “WandaVision”. Q2 2021 earnings in May failed to stop the slide, missing revenue expectations with a 13.4% year-over-year decline.

Slowing Disney+ Subscriber Growth

The entertainment giant’s cruise ships remain landlocked until at least Aug. 6 despite relaunching by Floridian rivals, further impacting 2021 income. “Black Widow” and other Disney films should do relatively well, as evidenced by the solid “F9” box office in the last two weeks. However, the slate of entries includes the next generation of Marvel films that could fall flat with an audience seeking raw entertainment, rather than Hollywood’s usual dose of heavy-handed political messaging.

Worse yet, The Information reported last week that Disney+ U.S. growth slowed sharply in the first half of 2021, following a similar shortfall at Netflix Inc. (NFLX). Its common knowledge the pandemic pulled future demand forward due to endless lockdowns, reducing 2021’s pool of available subscribers. As that publication notes “The slowdown in growth at Disney+ reinforces long-standing questions about Disney’s ability to expand the streaming service to its target of 230 million to 260 million subscribers globally by the end of the 2024 fiscal year.”

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 2 ‘Overweight’, 6 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $147 to a Street-high $230 while the stock closed Friday’s session more than $30 below the median $212 target. This humble placement supports higher prices if recently-reported metrics are inaccurate and the company reports higher-than-expected subscriber growth in the Aug. 12 release.

Disney failed a breakout above the 2015 high at 122 during the pandemic decline and rallied to a new high in December. The subsequent uptick stalled after mounting 200 in March, giving way to a persistent slide that broke 50-day moving average support in April. The failure to remount that barrier in the last three months raises a red flag, highlighting continued weakness. In addition, the pullback has flipped long-term relative strength readings into an active sell cycle that project continued weakness into the fourth quarter.

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Disclosure: the author held no positions in the aforementioned securities at the time of publication.