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Is Disney Stock Bouncing Back after Its Q3 Results?


Aug. 12 2019, Published 3:34 p.m. ET

The Walt Disney Company (DIS) stock fell 5.7% from August 1 to August 7. Its lower-than-expected fiscal 2019 third-quarter revenue and earnings affected its performance.

The equity market crash also affected Disney stock. However, the stock rose 2.7% on August 8 and 9. Year-to-date, it’s up 26.3%. Its robust growth activity is likely driving its rise.

Disney’s peers Alphabet (GOOGL) and Apple (AAPL) rose 1.1% and 1.0%, respectively, on August 8 and 9. Netflix (NFLX) and Amazon were up 1.5% and 0.8%, respectively, in the same period. However, Twitter was down 0.5% in the period.

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Disney stock rises as the market sees a silver lining

Disney’s revenue of $20.2 billion missed Wall Street analysts’ estimate by about 6%. The company’s EPS of $1.35 also fell short of analysts’ estimate by about 23%.

The company’s earnings fell 59% YoY (year-over-year) to $0.79 in the third quarter of fiscal 2019. However, on an adjusted basis, Disney’s EPS fell 28% YoY to $1.35. The fall in its operating earnings led to a decline in its net earnings. Its operating profit fell 5% YoY to $3.9 billion in the quarter. A loss in its Direct-to-Consumer & International segment drove the fall in its earnings.

However, the company’s other segments’ earnings rose in the quarter. Disney’s Media Networks segment’s operating profit rose 7% YoY to $2.2 billion due to the integration of 21st Century Fox. The Media Networks segment is the highest contributor to the company’s total operating earnings.

Further, the second-highest-contributing Parks, Experiences, and Products segment’s earnings rose 4% YoY to $1.7 billion. The segment’s earnings rose due to its increased merchandise licensing and its retail business. Its merchandise licensing rose due to higher revenue from Toy Story merchandise. Higher average ticket prices at Disneyland Paris also helped its earnings.

Besides, the Studio Entertainment segment’s profit rose 13% YoY to $792 million in the third quarter. The segment’s earnings rose due to higher theatrical distribution supported by Avengers: Endgame, Captain Marvel, Aladdin, and Toy Story 4. To learn more, read Disney’s Avengers: Endgame Has Broken Avatar’s Record.

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Disney stock: Company expanding via acquisitions

Disney acquired 21st Century Fox on March 20. The acquisition is expected to strengthen Disney’s foothold in the international market with its premium content. Also, the acquisition boosted Disney’s Media Networks segment’s earnings. In the third quarter, its Cable Networks income rose due to the consolidation of the FX and National Geographic networks. Plus, an increase in advertising and affiliate revenue at ESPN supported the segment’s earnings.

Further, Disney’s integration of Hulu, higher investment in ESPN+, and more spending for its upcoming Disney+ platform led to a fall in its Direct-to-Consumer & International earnings. Though this spending affected its profits this quarter, eventually it will translate into higher revenue and earnings.

Chair and CEO Robert A. Iger said, “I’d like to congratulate The Walt Disney Studios for reaching $8 billion at the global box office so far this year–a new industry record–thanks to the stellar performance of our Marvel, Pixar and Disney films.” He continued, “The incredible popularity of Disney’s brands and franchises positions us well as we launch Disney+, and the addition of original and library content from Fox will only further strengthen our direct-to-consumer offerings.”

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The upcoming launch of Disney+

Disney is all set to launch Disney+ in November. The company plans to introduce its bundle of Disney+, ad-supported Hulu, and ESPN+ for $13 per month. If purchased separately, these services will cost customers about $18 per month, so the bundle is being launched at a discount of about $5. Disney plans to reach 60 million–90 million subscribers by 2024.

Disney+ will bring with it record-breaking content such as Avengers: Endgame, Captain Marvel, Aladdin, The Lion King, and Toy Story 4. The company is also redesigning Fox’s film strategy to focus on the release of high-quality movies. Such movie franchises include Avatar, Planet of the Apes, X-Men, Fantastic 4, and Deadpool. The service will offer 600 hours of National Geographic content and 300 hours of Fox Studio’s premium content.

Disney+ is priced at almost the same level as Netflix’s (NFLX) service. Netflix, the leading video streaming provider, has 151.6 million global subscribers. However, in its most recent quarter, Netflix lost users in the US for the first time in a decade. With Disney+, Disney is launching itself in a competitive yet huge marketplace. Disney’s peer Apple is planning to launch its Apple+ service this fall, and Alphabet is also planning to expand its video streaming service. AT&T and Comcast are set to launch their streaming services next year. However, with Disney’s premium and record-breaking content, the company seems set to secure a healthy share of the market.

A word from management

On the compay’s third-quarter earnings conference call, Iger said, “We’re also focused on leveraging Fox’s vast library of great titles to further enrich the content mix on our DTC platforms. For example reimagining home alone, Night at the Museum, Cheaper by the Dozen, and Diary of a Wimpy Kid for a new generation on Disney+.”

He also said, “Disney+ will ultimately become the exclusive streaming service for our vast library of movies and series National Geographic content all upcoming Disney, Pixar, Marvel and Star Wars movies and a robust slate of high quality original programming from the creative engines that drive our entire company.”


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