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Disney+ Launches, Shares Rise after Q4 Earnings

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Walt Disney (DIS) will release its Disney+ streaming services today across three countries. On November 7, the company declared upbeat fourth-quarter and fiscal 2019 results aftermarket. The company’s extraordinary fourth-quarter earnings caused the shares to increase 4% the next day.

Launch of Disney+

Disney+ is an upcoming US subscription video-on-demand streaming facility. The services will be launched today in the US, Canada, and the Netherlands. The services will be released in Australia and New Zealand on November 19. Disney+ will launch in Western Europe on March 31, 2020. After receiving positive reviews from customers during the testing phase, the company is looking forward to the actual launch today.

During the fourth-quarter earnings call, Disney CEO Robert A. Iger said, “At launch, Disney Plus users will have instant access to more than 500 movies including all of our beloved titles and more than 7,500 episodes of library television content, including 30 seasons of Simpsons.” The expanding collection should add more than 620 movies and 10,000 television episodes along with countless shorts and features by the end of the fifth year.

Disney reported better-than-expected Q4 results

Disney recorded a 34% YoY (year-over-year) increase in its fourth-quarter revenues and reached $19.1 billion—higher than its expectations and analysts’ estimates. The revenues from the Media Network segment rose 22% YoY, which drove the total revenues. The segment contributed to 33% of the company’s revenues, which made it one of the largest revenue contributing segments. The Parks, Experiences, and Products segment contributed 33% of Disney’s revenues and rose 8% YoY.

Regarding the operating margins, there was a positive move in the Parks, Experiences, and Products segment by 156 basis points YoY to 20.75%. The revenue growth from Frozen and Toy Story merchandise sales prompted the segment’s margins to rise. Similarly, the margins from the Studio Entertainment segment improved by nearly 480 basis points YoY to 32.5%. The increase in theatrical distribution results led to higher margins. On the flip side, the margins from the Media Network segment fell by about 720 basis points YoY to 27.38%. While the segment was the largest revenue contributor, an increase in the operating costs for ESPN+ hurt its margins.

The revenue beat boosted the bottom line with a non-GAAP EPS of $1.07 in the fourth quarter—a 28% YoY decline, but still above the consensus forecasts.

New developments and Q1 fiscal 2020 guidance

Disney’s 21st Century Fox strategic acquisition in March resulted in top-line expansion. However, the acquisition had a negative impact on the operating profits due to acquisition costs. The company expects the acquisition costs to have a negative impact on its EPS in the first quarter of fiscal 2020. However, Disney expects it to turn positive by fiscal 2021. The company also expects Hong Kong Disneyland’s operating profit to fall by nearly $80 million in the first quarter of fiscal 2020 due to prevailing trends in the fourth quarter. In fiscal 2020, Disney expects its capex to reach $500 million more than the capex incurred in fiscal 2019. The expenses will be directed towards the direct-to-consumer segment.

ESPN+ started operations in April 2018 in order to provide a support system to its Media Network segment. The segment was losing out on the subscriber base. However, Disney acquired over 1 million subscribers in more than five months. Currently, the company has gathered nearly 3.5 million paid subscribers.

Disney+ might boost its stock performance

Disney’s stock price rose 3.8% on November 8. There was positive momentum in the shares due to the earnings beat released on November 7 aftermarket. As of Monday, the shares are trading 7% off the 52-week high. The company is ready for the first phase of the Disney+ launch today. In 2019, the stock has recorded a 25% return year-to-date and outperformed the S&P 500’s 23% return. With the launch of Disney+, investors should watch the stock movement.

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