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Disney (NYSE:DIS) Beats on Earnings, What’s Next for the Brand?

Posted on Friday, November 8th, 2019 by Chris Markoch

Walt Disney (NYSE:DIS) shares were up nearly 6% after hours. The company reported earnings after the closing bell on November 7 and beat on the top and bottom lines. The company’s revenue numbers came in above analysts’ estimates ($19.1 billion as opposed to the consensus estimate for $19.04 billion), the company posted earnings-per-share of $1.07 that easily beat the consensus estimate for 94 cents per share. Earnings were down over 20% on a year-over-year (YoY) basis. However, revenues were up 34% YoY.

This makes it four out of the past five quarters that the entertainment giant has beaten EPS estimates. It also avoided the dubious distinction of missing on earnings in two consecutive quarters. In the second quarter, Disney’s EPS was $1.35, over 23% below analysts’ expectations.

Disney is once again proving its doubters wrong

There was a sense that Disney stock may present investors with some short-term pain for a long-term gain. Although DIS stock has climbed nearly 20% in 2019, it hasn’t been all sunshine inside the Magic Kingdom. In the last six months, the stock reached a high of over $146 but has since plunged 10%. This prompted at least one analyst, Alexia Quadrani of JPMorgan Chase to lower the firm’s estimate for Disney stock.

But the positive earnings report is showing that Disney is planning to let its shareholders have their cake and eat it as well.

Disney is overcoming all obstacles

Coming into the earnings report, two issues were hanging over DIS stock. First, the company continues to integrate the assets they acquired from Fox. In their second-quarter earnings report, Disney cited its $71 billion acquisition as the primary reason it missed on both profit and sales. At that time, Disney projected the new business would reduce profits by about 35 cents per share, but the company took a deduction of 60 cents per share.

The other obstacle hanging over the stock was the November 12 launch of Disney’s own streaming service, Disney+. This service will feature content from the company’s Marvel Universe, Pixar, “Star Wars” franchise, National Geographic and more.

The new streaming service will replace the revenue the company currently receives from cable and satellite subscriptions. While the company did not provide specific information regarding demand for the new service they announced a distribution deal with Amazon to carry Disney+ content on Amazon’s Fire TV.

Plus, Disney+ will be launched at a price of just $6.99, which will be the lowest among all the streaming services that will be participating in the streaming wars.

“We’ve spent the last few years completely transforming the Walt Disney Co. to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re excited for the launch of Disney+ on November 12,” Disney CEO Robert Iger said in a statement to announce the results.

Revenue from theme parks was up over 8%

I have to admit, at one time I bought into the narrative that Disney was a battleship that was too large to effectively deliver profits on a regular basis. One of the reasons was that the company needed to find revenue streams outside of its theme parks. And while they have made strides in their entertainment division, those acquisitions cost billions of dollars. This, after a period of time, starts to add up even for a company the size of Disney.

And as the U.S. consumer is starting to trend toward experiences and adventure travel, a Disneyland or Disney World vacation could be seen as too traditional, even boring. Particularly for teenagers who often see Disney as a place for little kids.

But revenue from Disney’s theme parks continues to grow as well. In the earnings report, the company announced that theme park revenue was up 8% at $6.65 billion

Disney continues to generate new revenue streams

For sure, theme park revenue and the associated revenue that comes from guests staying at Disney properties remains a primary driver of growth. However, the company has grown to be so much more. From movies to Disney+, which launches in November, Disney has many more revenue streams than it did 20 years ago.

To that end, revenue from the company’s media networks rose 22% on a YoY basis to $6.5 billion. Disney’s studio entertainment division also came in markedly higher. The studio brought in $3.3 billion which was 52% higher than the $2.2 billion than in 2018. Most of that was due to the box office success of Toy Story 4, Aladdin, and The Lion King.

Disney is a brand experience that has few equals. Some analysts may see Disney as a poor buying opportunity due to challenges in one or another area of their business. But in the case of Disney, I think the whole is greater than the sum of its parts – and those aren’t too bad either.

 

 

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
Walt Disney (DIS)$146.93-1.0%1.20%25.46Buy$154.15

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