Disney Q3 Earnings Fail to Cheer Investors

The Walt Disney company (NYSE:DIS) reported fiscal Q3 earnings and revenue on Tuesday that missed analyst estimates. Earnings per share (EPS) of $1.87 missed Reuters estimates of $1.95, while revenues of $15.23 billion missed Reuters estimates of $15.34 billion. In the year-ago quarter, the company had posted EPS of $1.58 and revenues of $14.24 billion. Here we use TipRanks data to take a closer look at what Wall Street’s top analysts see in store for the House of Mouse over the next 12 months.

Immediately after the earnings release, shares of Disney dropped around 2%, although it pared back these losses later in trading. The results were plagued with higher programming costs and a loss in ESPN subscribers. Moreover, as CFO Christine McCarthy rightly pointed out, Easter’s timing cost the company $47 million in operating income, since two weeks of holiday fell in Disney’s third quarter last year, compared with just one week this year. 

Despite this miss, there were some positive takeaways. Disney saw strong growth in its studio, parks, and media networks segments. Studio revenues witnessed a massive 20% year over year increase to $2.9 billion, owing to strong box office sales for blockbusters like “Avengers: Infinity War,” “Black Panther,” and “Incredibles 2.” Disney media networks revenues were up 5% to $6.2 billion, while parks and resorts revenue was up 6% to $5.2 billion. However, consumer products and interactive media saw an 8% decline in revenues to $1 billion.    

“We’re pleased with our results in the quarter, including a double-digit increase in earnings per share, and excited about the opportunities ahead for continued growth,” Robert A. Iger, Chairman and CEO of Disney, said. Moreover, the CEO pointed out that the loss in cable subscribers has relatively eased since ESPN began appearing in low cost TV packages. “Once they said ESPN subs continued to improve, the stock popped back up,” Vasily Karasyov (Profile & Recommendations), an analyst with Cannonball Research LLC said. “It tells you what people care about,” he added.

Most of the earnings call focused on two developments in the business, number one being Disney’s $71 billion pending acquisition of 21st Century Fox (NASDAQ:FOXA), which has already been approved by shareholders of both companies and the U.S. Department of Justice. However, investors are still anxiously waiting for the green light from a few countries, including China, which are yet to approve the acquisition. And unsurprisingly, the second most talked about development in Disney’s business is its much-hyped Netflix-like offering, which it plans to launch somewhere in late 2019. This will be like its ESPN streaming service and will allow viewers to watch films and TV. 

“Having earned the overwhelming support of shareholders, we are more enthusiastic about the 21st Century Fox acquisition than ever, and confident in our ability to fully leverage these assets along with our own incredible brands, franchises, and businesses to drive significant value across the entire company,” Iger said, as the chief pointed out its streaming service offering as the greatest priority of the company. “We have the luxury of programming this product with programs from (Disney) brands… or derived from those brands, which obviously creates a demand and gives us the ability to not be in the volume, but be in the quality game,” the CEO added. 

But isn’t every management bullish on its company’s potential? The Street pointed out that Disney’s plans to venture into the direct to consumer game is a risky plan. “Investors underestimate how difficult direct-to-consumer is,” Rich Greenfield, an analyst at financial analysis firm BTIG research stated. He added, “Success is not going to be measured in millions. It’s ‘Can DisneyFlix be at 100 million to 200 million homes worldwide?”

On the other hand, Morgan Stanley’s Benjamin Swinburne (Profile & Recommendations) is more optimistic. He has a Buy rating on the stock with a Street high $130 price target- making him the stock’s biggest supporter right now. “We believe Disney will leverage its popular brands to make continued investments in original films and TV series for the streaming service, with the potential opportunity to leverage Fox’s production assets and intellectual property in building a larger streaming content library,” Swinburne wrote.

Overall, analysts are staying in wait-and-see mode for now. We can see that the stock currently floats a Hold rating. In the last three months, the stock has received 2 buy ratings, 4 hold ratings and 1 sell rating. Moreover, per the Tipranks analyst consensus, the stock has a price target of $113.57, indicating a 2.57% downside from current levels. See what other Top Analysts are saying about DIS.

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