Walt Disney Co. is about to report results in ‘a pivotal quarter,’ with investors focused on early returns from the Disney+ streaming service and potentially concerned about effects from the coronavirus outbreak in China.
Disney DIS, +0.36% is scheduled to report fiscal first-quarter results Tuesday afternoon, a quarter that included the launch of its long-awaited streaming service. Shares received a huge bounce after the entertainment giant announced that it had attracted 10 million subscribers one day after the service launched in the U.S. and two other countries, but it has given back those gains since and analysts say investors are still not sure about the stock.
“Everyone seems to like Disney, but no one loves it,” Wells Fargo analysts wrote in an earnings preview, later adding, “We think this could be a pivotal quarter, with narratives on the Disney+ expansion and Parks performance getting buyers off the sidelines.”
Disney already announced that it will expand Disney+ to western Europe earlier than expected, which will move the launch into the second quarter and therefore affect the outlook for the current period. Analysts are also looking for Disney to report more than 20 million subscribers as of the end of last quarter, with the Wells Fargo analysts putting their estimate at about 22 million.
While high hopes for the Disney+ expansion could help the company’s forecast, the coronavirus outbreak in China could bring it back down. Disney closed its Shanghai theme park indefinitely on Jan. 25 due to the virus, which adds to issues the Hong Kong park has had amid civic unrest there.
If the coronavirus continues to keep movie theaters closed, it could also harm the opening of Disney’s live-action “Mulan” movie, which is set to open near the end of the quarter and was expected to be very popular in China due to its depiction of a fictional Chinese warrior, JP Morgan analysts warned.
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Any issues with international theme parks only adds to concerns with domestic theme parks, which are not expected to show attendance gains even after the launch of new “Star Wars”-themed offerings. Wells Fargo analysts said that Disney parks may see flat attendance in the foreseeable future, and will need show that it is making more money on guests attending Disney parks in the U.S. to excite investors.
“The decision to shut down the park couldn’t come at a worse time for Disney since the Chinese Lunar New year just started [on Jan. 25], and under normal circumstances the following week … is a very high-volume week for the Shanghai park,” Imperial Capital analyst David Miller wrote in a preview. “Particularly unnerving for Disney shareholders is the prospect that, because the virus is spreading in the U.S., Disney may have to take some sort of preventative action at the domestic parks, which would negatively affect the stock price in a more accentuated manner because Disney’s two domestic parks are wholly owned.”
What to expect
Earnings: Analysts on average predict adjusted earnings of $1.47 a share, according to FactSet, which would be a decline from $1.84 a share a year ago. Contributors to Estimize, a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, on average predict adjusted earnings of $1.49 a share.
Revenue: Analysts on average predict sales of $20.77 billion as of Friday afternoon, according to FactSet, up from $15.3 billion a year ago. They predict $6.97 billion from the television business, $7.33 billion from the theme parks segment, $3.41 billion from the movie studio business and $3.83 billion from the direct-to-consumer and international segment. The Estimize consensus calls for revenue of $21.18 billion.
Stock movement: Disney shares have gained 24% in the past 12 months as of Friday afternoon, as the Dow Jones Industrial Average DJIA, -2.09% , which counts Disney as a component, has gained 15.4% and the S&P 500 index SPX, -1.77% has increased 19.3%. The stock has largely been stuck in neutral since huge gains following the unveiling of Disney+ and the smash success of “Avengers: Endgame” last spring, however: Disney shares are up only 1% in the past nine months.
What analysts are saying
In the studio business, Disney is still integrating the 20st Century Studio assets it purchased last year, which Wells Fargo analysts — who have an overweight rating and $175 price target on the stock — say will result in “a lot of changes in Studio estimates as we move through the year.”
The results from the fiscal first quarter should be strong though, as it will include some results from two Disney movies that have grossed more than $1 billion globally, “Frozen 2” and “Star Wars: The Rise of Skywalker.” While the latest Star Wars may not have lived up to high expectations, Imperial’s Miller — who has an “in-line” rating on the stock and a $143 target — points out that “Ford vs. Ferrari,” which was produced by 20th Century, outperformed its expectations.
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Little is expected of the TV business, which is still facing issues with cord-cutting — Wells Fargo called the segment “mundane and steadyish.” Morgan Stanley analysts recently raised their price target to $170 on excitement for streaming efforts, but noted that it was “partially offset by lower core EPS as we layer in our updated US pay-TV forecast which incorporates a greater level of cordcutting.” The analysts retained an overweight rating on the stock.
Analysts were pretty universal that subscriber numbers for Disney+, as well as any info executives may give on ESPN+ as well as Hulu — which announced a CEO change late Friday — will be the key metric Disney may provide.
“The main focus remains on subscriber numbers as we expect sub updates for Disney+, ESPN+, and Hulu on the earnings call,” wrote JP Morgan analysts, who have an overweight rating and $160 price target on the stock.
Out of 27 analysts tracked by FactSet, 20 have the equivalent of a buy rating on Disney stock, and seven call the stock a hold; there are no sell ratings. The average price target as of Friday’s close was $158.33, 14.5% of the closing price.