What: Shares of Walt Disney fell 15.1% in August, according to data from S&P Capital IQ. The entertainment titan missed Wall Street's revenue estimates in a second-quarter report published early in the month. When that quick plunge was in the books, Disney stock simply followed the overall market jitters for the rest of August.
So what: The House of Mouse delivered slightly soft second-quarter sales due to weak ad sales for premium sports network ESPN. Several analyst firms quickly followed up with downgrades and/or lowered price targets, egged on by similar issues across the traditional media industry.
Now what: Many Wall Street firms took this earnings season as evidence that cord-cutting is a real thing. Indeed, Disney CEO Bob Iger admitted as much in his earnings call with analysts:
In other words, a significant number of American households are swearing off cable TV packages altogether. A smaller cohort is ordering their cable bundles without the premium ESPN component, but the real damage came from all-out cord cutters.
As a cord-cutter since 2010, I certainly see the appeal of lighter cable bills. If you're not into live sports, there's little reason to pay up for the whole nine yards anymore. This is a trend to be reckoned with, and it's already shaking up the entertainment industry at large.
The long-term impact on Walt Disney is likely to be muted, though.
Like I said, live sports coverage is perhaps the biggest reason to hang on to traditional cable packages nowadays. ESPN happens to be the clear leader in this space, insulating these channels from the worst of the coming storm.
In other words, the early August panic was probably an overreaction. For investors with a long-term focus, Disney shares have dropped back to levels not seen since February, erasing six months of market-beating progress. Some would call that a fantastic buy-in opportunity.
The article Why Walt Disney Co. Fell 15.1% in August originally appeared on Fool.com.
Anders Bylund owns shares of Walt Disney. The Motley Fool owns and recommends Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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