Disney’s Blockbusters Are Set to Boost Its Q3 Earnings

The Walt Disney Company (DIS) is set to report its fiscal 2019 third-quarter earnings results on August 6 after the market closes. Investors are waiting for updates on the upcoming launch of its online streaming service, Disney+. Disney has been dominating the industry with back-to-back blockbuster movies, theme parks, and services. The company is also consistent with its dividends, a practice that’s likely to continue in the third quarter.

The company is likely to beat analysts’ estimates on both earnings and revenue in the third quarter. It’s topped Wall Street’s earnings estimates in eight of the past ten quarters. Disney’s revenues have also exceeded the consensus estimates for the past three consecutive quarters. Analysts expect its EPS to fall more than 6% to $1.75 on 40.9% higher revenue of $21.5 billion.

Disney stock fell to $141.71 on August 2, near its 52-week high of $147.15. As of its last closing price, the company’s market cap was $249.4 billion. The stock has returned more than 29% this year, higher than the S&P 500’s return of around 17% as of August 2.

Disney’s Blockbusters Are Set to Boost Its Q3 Earnings

Disney’s movies to boost studio revenue

Last quarter, Disney’s studio revenue fell 15% year-over-year due to a lack of blockbuster movies. However, Disney released several blockbusters in the third quarter, including Avengers: Endgame, Toy Story 4, Spider-Man: Far From Home, and Aladdin.

Last month, Marvel’s Avengers: Endgame made history when it broke Fox’s Avatar‘s record of being the highest-grossing film of all time. Endgame secured its victory with a box office total of over $2.789 billion worldwide. Disney rereleased the movie on June 28 with some deleted scenes, helping it reach the top spot. Pixar’s Toy Story 4 also broke the franchise’s opening weekend record with $118 million. Toy Story 4 also beat the sales records of all previous Toy Story films.

Disney acquired the Avatar franchise along with other premium media assets from 21st Century Fox in March. The media company is set to announce four Avatar sequels between 2021 and 2027.

Disney’s theme parks

Last quarter, Disney’s Parks, Experiences & Consumer Products segment posted revenue growth of 5% boosted by its theme parks and resorts. The division should show improvement in the coming quarter as well. The company expects higher spending at its domestic theme parks to boost its revenue. It’s also been raising the prices at its theme parks, which could further increase its theme park revenue.

Disney opened its highly anticipated Galaxy’s Edge Star Wars area at Disneyland, California, in May. The company is set to launch Walt Disney World’s Hollywood Studios in Florida this fall.

Disney+ streaming product

Analysts and investors are looking forward to Disney’s streaming service, Disney+, which is set to launch on November 12. So far, the company has revealed that Disney+ will offer original movies and shows under the Disney, Pixar, Marvel, Star Wars, and National Geographic franchises. The service is expected to compete with streaming rivals Netflix (NFLX), Amazon Prime Video, AT&T’s (T) HBO Now, and Alphabet’s YouTube TV. However, higher spending on Disney+ is increasing Disney’s expenses, which is hurting its earnings growth.

Competition with Netflix

Disney expects Disney+ to add around 60 million–90 million subscribers by the end of fiscal 2024. According to Morgan Stanley analyst Benjamin Swinburne in a CNBC report, Disney+ will likely draw more subscribers to its platform than Netflix in the US by 2024. Netflix’s domestic growth is slowing, and Disney could benefit from that. Swinburne expects Netflix to reach about 79 million domestic subscribers by 2024, while he expects Disney+, Hulu, and ESPN+ combined to attract around 95 million.

Disney+ is likely to dominate the streaming industry with its attractive pricing. The company’s streaming product will launch at $6.99 per month, much lower than content king Netflix. Netflix’s basic plan starts at $8.99, and its most popular plan is $12.99 per month.

Besides Disney, many companies are soon to launch their streaming services and step up the competition in the space. The monthly cost of Comcast’s (CMCSA) streaming product is $10 per month. AT&T’s WarnerMedia is also launching HBO Max in spring 2020 for around $16–$17. Apple is set to debut its streaming service this fall, but it hasn’t disclosed any pricing details.

Analysts’ recommendations 

Of the 26 analysts covering Walt Disney, around 19 give the stock “buy” ratings just ahead of its fiscal 2019 third-quarter earnings release. One analyst gives it a “sell,” and six call it a “hold.” Analysts have a target price of $151.65 on Disney stock, which implies a premium of around 7% based on its closing price of $141.71 on August 2.

Peer comparison

Media peers Comcast and Dish Network also recently reported their second-quarter results. Comcast reported mixed results, wherein its EPS of $0.78 beat estimates but its revenue of $26.9 billion missed estimates.

Dish Network delivered lower-than-expected EPS of $0.60 in the second quarter. Meanwhile, its revenue of $3.21 billion beat analysts’ estimate.

Netflix also topped its earnings estimates and reported EPS of $0.60 in the second quarter. Netflix delivered total revenue of $4.92 billion in the quarter, marginally missing analysts’ estimate.