Avatar sequel box office returns drag Disney stock even lower

The Walt Disney Company has had good reason to expect big things, and big returns, on the long-awaited sequel to 2009’s “Avatar,” a film that grossed $2.9 billion and is still tops the list of highest grossing movies of all time.

And director James Cameron’s “Avatar: The Way of Water” was no slouch in its opening weekend, taking in $134 million from U.S. theaters and more than $434 million on worldwide. The problem is, US results fell short of analysts’ predictions for the film, which expected “The Way of Water” to pull in $150 million to $175 million over on its opening weekend, according to a report from CNBC.

That underperformance had dragged Disney’s stock price down on Monday to a 52-week low and near its lowest value since 2014, continuing a cycle that has seen the company face several financial challenges. Disney stock has lost more than 40% of its value in the past year.

In addition to falling short of expected US box office sales, “The Way of Water” saw disappointing box office sales in China over the weekend, a country that helped drive ​​The original “Avatar” to the highest level. The current COVID-19 restrictions in China helped temporarily shut down movie theaters there, which came in at just over $57 million for the finale -week, according to The Wall Street Journal. Only about 35% of the movie theaters in China were open when “The Way of Water” opened.

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Filmgoers’ fear of contracting the virus also factored into the shocking attendance numbers.

“The problem is that nobody wants to go to the cinema, because they’ve been told that COVID is extremely dangerous,” Tony Chambers, Disney’s head of worldwide theatrical distribution, told the Journal. “Although cinemas are open, the desire to go to them is not really there.”

While Disney’s stock value fell nearly 5% on Monday, shares were up 1.45% for the day at the close of regular trading on Tuesday.

What are Disney’s financial problems all about?

Tinkerbell’s wand may no longer pack the magical punch it once did, according to the latest financial reports from the world that Walt Disney built.

But the return last month of Bob Iger, the longtime Disney chief who built a reputation for hoarding gold when it came to generating profits for the company, is encouraging investors to hope that it can still evoke the prosperity even as the economic wealth of the world. .

To be sure, Disney theme parks are hugely popular and generate a lot of business – and profits – for the Walt Disney Co. conglomerate. % for the same period a year ago.

However, although total revenue was up, according to the company’s latest financial statement, profit margins were not significantly lower than projections. According to The Wall Street Journal, profit margins at Disney’s domestic parks and experiences business, which also includes cruise ships, fell nearly 16 percentage points from the previous quarter to 14.8%, well below expectations. analysis about 20%.

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The Journal noted that while it is normal for these margins to decline for the quarter that spans the end of summer and the beginning of the school year, this year’s slide was more important than usual and could indicate a problem such as a slowing economy and recessionary concerns affecting the situation. families spend on leisure and entertainment.

“The loss on the parks was a big surprise,” David Goodman, a senior analyst at Columbia Threadneedle Investments, the asset management arm of Ameriprise Financial and a major Disney shareholder, told The Wall Street Journal.

“The biggest issue is, as they ramp back and things reopen, there seems to be a mismatch between income and expenses,” Goodman said. “Thinking about next year for the parks, even though demand looks strong now, that’s just today, and with the market thinking about a recession, there are a lot of things unknown there.”

Disney park profits bolster bigger bets

Disney has been working to pump up park profits by raising base admission fees as well as adding new pay-to-play services like the Genie+ pass that allows entrants to skip long lines at rides park and attractions. But it has also been hit by unexpected issues, such as Hurricane Ian that temporarily closed Disney World in Florida, costing the company $65 million, according to The Wall Street Journal. Greater investments in marketing and events also ate into profits over the last quarter.

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While park profit margins were down, and Disney stock has slipped about 35% since the beginning of the year, the company and its investors are looking to that revenue to offset some bad red ink that comes from other projects.

In the third quarter of this year – the fourth quarter for Disney’s fiscal calendar – the company added 12.1 million Disney + subscribers and 14.6 million direct-to-consumer customers, surpassing the most analysts’ estimates and blowing away the quarterly addition from Netflix, which earned just 2.4. million new subscribers in the quarter, according to CNBC.

Despite the increase in subscribers, net operating loss in Disney’s streaming division, which includes Disney+, Hulu and ESPN+, increased to $1.47 billion in the quarter, per CNBC . That’s more than double the loss from a year ago, which Disney blamed in part on a lack of “prime opportunity” content, or films released theatrically for which Disney charged an extra $30 to broadcast, such as “Black Widow” and “Jungle Cruise. “

Since its launch, Disney+ has reportedly lost around $8 billion.

Disney said during its earnings call, which came a few weeks before Iger was reinstated as the company’s chief executive, that it expected losses to narrow in the coming quarters, but the statement did not keep the earnings report from disappointing. to drag down Disney stock. even longer.


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