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Disney's Rebounding, but Investors Are Really Lovin' This AI Stock

Motley Fool - Thu Nov 9, 2023

Investors continued to find the stock market attractive on Thursday morning, even in the wake of several days of significant gains. After having spent so much of the year being pessimistic about the economy and the environment for businesses, market participants seem to have shifted their attitude and started to see the prospects for better times ahead. Stock index futures were generally higher early Thursday.

The Dow Jones Industrials looked primed for a modest gain to start the day, and an upward move from Walt Disney (NYSE: DIS) was a key catalyst for the early advance. Yet even though Disney's financial results gave shareholders some much-needed optimism about the media and entertainment giant's long-term promise, the gains in that stock paled in comparison to those that AppLovin (NASDAQ: APP) shareholders enjoyed. Here's what you need to know about both stocks.

Disney gets a key win in the streaming wars

Shares of Disney rose 4% in premarket trading early Thursday. The entertainment giant reported results for its fiscal fourth quarter ended Sept. 30, and despite ongoing worries about the fundamentals of the video streaming business, Disney was able to put in a strong showing in that highly competitive industry niche.

Overall, Disney produced solid results for the quarter. Revenue of $21.2 billion was up 5% year over year. Adjusted earnings almost tripled from year-ago levels to $0.82 per share. For the full 2023 fiscal year, though, the performance was more muted, with sales climbing 7% and adjusted earnings picking up about 7% to $3.76 per share.

On the streaming side of the business, the Disney+ subscription service gained nearly 7 million core subscribers during the quarter. The gains came in part because of major releases like The Little Mermaid and the third installment of the Guardians of the Galaxy movie franchise, along with various original series both domestically and internationally. ESPN performed well, as did the cruise and theme park segments.

Most notably, Disney said that it expects streaming to become profitable by this time next year, and although it predicted a potentially rocky road to reach profitability, shareholders seemed content with the news. Combined with projections for substantial free cash flow growth in fiscal 2024 due to cost reductions, Disney looks like it might finally have found a road map to a full recovery.

Tech investors are AppLovin it

Meanwhile, shares of AppLovin jumped 14% early Thursday. The marketing platform provider reported third-quarter financial results that made investors even more confident about the company's comeback story.

AppLovin reported revenue of $864 million for the period, up 21% year over year. Net income for the quarter more than quadrupled to $109 million, producing earnings of $0.30 per share.

AppLovin CEO Adam Foroughi was pleased about what he called the company's "best quarter ever," noting that the company's artificial intelligence (AI)-based AXON 2.0 advertising engine was a key driver for the strong results. Indeed, software platform revenue jumped at a 65% annual rate during the quarter, helping to offset weaker sales in AppLovin's former core apps segment.

Shareholders have been highly impressed with the shift in AppLovin's approach, as the stock has jumped more than 400% from its 2022 lows. As more app developers try to monetize their products, AppLovin is in a great position to keep building its business, making more stock repurchases and generally getting itself back into strong financial shape.

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Dan Caplinger has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.

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