The Walt Disney

’s

DIS

latest movie — Avatar: The Way of Water — is on its way to becoming the world’s highest-grossing movie released in 2022 after leading the global box office for a straight third week.

The latest Avatar movie generated $63.4 million in domestic ticket sales in the first three days and $1.38 billion since its release on Dec 16. This puts the movie on track to beat

PARAMOUNT GLBL

’s

PARA

Top Gun: Maverick’s total gross return, which has the bragging rights as the highest-grossing movie at the domestic box office for 2022.

Paramount GLBL’s Tom Cruise movie secured $1.49 billion in sales in 2022. However, Avatar became the fastest release to cross the box office’s $1 billion threshold since Spider-Man: No Way Home in December 2021, and the fastest in 2022, the movie is en route to becoming the highest-grossing movie.

In the first week of release, Imax reported that the latest Avatar movie grossed $435 million globally. Of this, Imax delivered $48.8 million, which majorly came from the box offices of North America and China as they recorded $16.5 million and $15.8 million, respectively, making Avatar: The Way of Water IMAX’s biggest December global opening of all time.

While Disney did not reveal the budget of the Avatar sequel, James Cameron, the director of the movie, cited that it has to be the third or fourth highest-grossing movie to break even. Being allowed to open up in China might enable the franchise movie to live up to past performance expectations.

The first Avatar movie, released in 2009, grossed nearly $2.9 billion worldwide, with $259 million from China, making it the highest-grossing film of all time. It edged out Avengers: Endgame after a September 2022 rerelease as the movie added $73 million in ticket sales.

The latest box office performance of the Avatar movie will also help Disney fund its key growth drivers like Disney+. However, Disney+ is facing significant competition in the streaming market from

Netflix


NFLX

and

Apple

’s

AAPL

Apple TV+. Further, it is spending huge capital to bring original content to fight against stiff competition in an extremely saturated market.

Disney Funds Disney+ to Boost Prospects

Disney is focusing on its streaming service, which will cost the company capital in terms of content and marketing to fend off competition from Netflix and Apple. Netflix is considered a pioneer in the streaming space and is enjoying the first mover’s advantage in the industry. Its solid content portfolio is a major growth driver.

Since the launch of Apple TV+, several Apple original series and films have earned more than 240 awards and 950 nominations, including the acclaimed SAG Awards, Primetime Emmy Awards and Critics Choice Awards. These accolades are catching viewers’ attention and helping Apple win market share from Netflix and Disney.

To fight peers, we expect Disney to expand its Direct-to-Consumer spending by 12.5% year over year. As a result, the Direct-to-Consumer operating loss is expected at $4.88 billion for fiscal 2023 compared with $4 billion in fiscal 2022. The rising spending and losses are expected to keep consolidated margins under pressure.

Also, DIS has an extremely leveraged balance sheet, portraying that it is lending more money to grow the business in a highly fragmented market. Total borrowings were $48.37 billion as of Oct 1, 2022, compared with $46.6 billion as of Jul 2, 2022. Disney’s debt balance compares unfavorably with cash, cash equivalents and current marketable investment securities balance of $11.62 billion.

Such headwinds impacted the share price of Disney, which currently carries a Zacks Rank #5 (Strong Sell). In the six-month period, its shares fell 9.6% compared with the Zacks

Media Conglomerates

industry’s decline of 10.1%.

You can see


the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here


.

However, Disney expects Disney+ to reach profitability by 2024. It is also counting on releases, such as Black Panther: Wakanda Forever, apart from Avatar: The Way of Water, to fuel its subscriber acquisition and fund its top-line growth in the coming quarters.

Zacks Top 10 Stocks for 2023

In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2023? From inception in 2012 through November, the

Zacks Top 10 Stocks

portfolio has tripled the market, gaining an impressive +884.5% versus the S&P 500’s +287.4%.

Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.

Be First to New Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.

Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research