Walt Disney (DIS) dropped 13% in a single day following the release of its fiscal-fourth-quarter results last week. However, shares have recouped a good deal of those losses since then.
As I expected, the company’s Disney+ subscriber numbers exceeded expectations with 12.1 million subscriptions added to bring the total to 164.2 million. However, the streaming segment posted a larger-than-expected loss for the quarter of $1.47 billion. Since its launch, Disney+ has lost more than $8 billion. But management has said it has hit “peak losses” and should see them narrow going forward as it prioritizes income over growth.
Offsetting losses in streaming were record quarterly revenue and operating income for the company’s parks, experiences and products segment. Revenue for the segment of $7.4 billion was up 36% year over year.
Total revenue and earnings per share for the quarter missed estimates, and management forecast revenue growth of less than 10% for the new fiscal year, prompting the sell-off in shares. Yet, investors responded well to news late last week that the company plans to freeze hiring and cut some jobs to reduce costs.
Our cost basis remains well above the current share price. However, the stock is grossly undervalued, so we will be sticking with it. Since our call is well out of the money, let’s roll it down to a lower strike price while keeping the expiration date the same to generate more income and reduce our cost basis on the position.
Current Stock Price: $95.67
Cost Basis: $127.89
Action:
- Buy to close the DIS Nov Monthly (11/18) 105 Call for around $0.08
- Sell to open the DIS Nov Monthly (11/18) 98 Call for around $0.78
- Set initial credit limit at $0.70, but adjust as needed to roll today
New Cost Basis: $127.19