Disney parks concerns, film successes to vie for attention in Q3 report Media giant and theme park operator Disney (DIS) is scheduled to report results of its fiscal third quarter before the opening of regular trading on Wednesday, August 7, with a conference call scheduled for 8:30 am ET. What to watch:
STREAMING: In Q2, Disney reported what CEO Robert Iger said was a "strong performance" that "demonstrates we are delivering on our strategic priorities and building for the future."
Iger added: "Importantly, entertainment streaming was profitable for the quarter, and we remain on track to achieve profitability in our combined streaming businesses in Q4. Looking at our company as a whole, it's clear that the turnaround and growth initiatives we set in motion last year have continued to yield positive results. We have a number of highly anticipated theatrical releases arriving over the next few months; our television shows are resonating with audiences and critics alike; ESPN continues to break ratings records as we further its evolution into the preeminent digital sports platform; and we are turbocharging growth in our Experiences business with a number of near- and long-term strategic investments."
Disney also noted that it targets FY24 adjusted EPS growth of 25% and said it remained "on track to generate approximately $14 billion of cash provided by operations and over $8 billion of free cash flow this fiscal year."
On Tuesday, August 6, Disney+ announced it is adding continuous playlists to its core subscription on-demand offering in the U.S. Disney also announced higher prices for most of its streaming plans. "With this growing offering, and new ways to enjoy your favorite Disney+ content, Disney subscription plans remain among the best values in streaming today," the company said in a statement. Most plans for Disney+, Hulu and ESPN+ starting on October 17 will cost $1 to $2 more per month, while the most expensive plans for Hulu, which include live TV, will cost $6 more per month. Disney+ with ads will cost $9.99 per month and without ads will cost $15.99. Hulu will cost $9.99 per month with ads and $18.99 without.
PARK CONCERNS: On day after the last report, Evercore ISI analyst Vijay Jayant lowered the firm's price target on Disney to $128 from $130 and kept an Outperform rating on the shares. Despite what the firm called "a broadly healthy 2Q print," Disney shares sold off, which the firm believes primarily reflected investor positioning as well as "consternation" around the theme parks starting to see a post-COVID demand normalization. While the theme parks demand commentary does "give us some pause," at that point Evercore said it did not believe the company's earnings power had "materially deviated from our prior expectations."
In June, Goldman Sachs analyst Michael Ng initiated coverage of Disney with a Buy rating and $125 price target as part of a broader research note on U.S. Media names. The U.S. media industry is in a state of transition given increasing content competition from streaming, social, and mega tech as well as technology disruptions in distribution, and the firm prefers U.S. media stocks with deep competitive moats that should provide better visibility into growth, the analyst told investors. The firm views the company as a "high quality EPS compounder" that should deliver a 14% EPS compound annual growth rate, Goldman Sachs added.
On July 23, Barclays noted that Comcast's (CMCSA) Universal reported a 10% drop in revenues in theme parks, which the firm called "pretty unprecedented in normal periods and hasn't been seen outside of recessions or events like Covid." However, the firm also noted that Comcast theme park revenue last year was about 44% higher than 2019 levels as the company benefited from Super Nintendo World, the impact of which is now unwinding. This may actually have been a headwind for Disney last year and could provide a comp tailwind, adds the analyst, who contends that revenue and cost mix at Disney and Universal parks is "very different" and cautions that extrapolations based on Universal results "may be misleading." Barclays has an Overweight rating on Disney shares.
A week later, Loop Capital analyst Alan Gould lowered the firm's price target on Disney to $130 from $139 and kept a Buy rating on the shares ahead of its results. The Street is underestimating Disney's film profits for the second half of the year by about $350M, while the more challenging Parks results should already be discounted in the stock given guidance drove a 10% share price decline on the last earnings call, and consensus has already digested Comcast's park results, the analyst told investors.
In a preview published on August 5, Morgan Stanley analyst Benjamin Swinburne lowered the firm's price target on Disney to $110 from $130 and kept an Overweight rating on the shares. The firm sees "enough data points at this point" to take a more cautious view of Disney's parks business in FY25, but adds that much of this appears priced in with shares off 23% since Q2 earnings were reported in May. The firm's FY25 and FY26 adjusted EPS forecasts have come down by about 4.5% and 1.5%, respectively, as a more bullish film outlook partially offsets the Parks caution, the analyst said, adding that the firm views the recent correction as "a buying opportunity in shares."
FILM SUCCESSES: In June, Disney and Pixar's "Inside Out 2" crossed the $1B mark in global ticket sales in its third week of release, making the movie the first to top $1B at the global box office since Warner Bros' "Barbie."
To close out July, Disney and Marvel's "Deadpool & Wolverine" opened to an impressive $205M at the domestic box office, making it the eighth biggest debut recorded and by far the most for an R-rated movie. Overseas, "Deadpool and Wolverine" opened to $233.3M for a worldwide opening weekend total of $438.3M.
Imax (IMAX) reported a "record" $36.5M Imax opening weekend for "Deadpool & Wolverine," noting milestones including the biggest Imax July opening ever; the biggest Imax R-rated opening weekend ever; the biggest Imax opening weekend of any movie since "Avatar: The Way of Water" in 2022; the biggest Imax opening weekend of a Marvel movie since "Spider-Man: No Way Home" in 2021; and the fourth biggest Imax Marvel opening of all time.
VENU SPORTS STREAMING JV: In February, ESPN, a subsidiary of Disney, Fox (FOXA) and Warner Bros. Discovery (WBD) announced plans to form a new joint venture to build a new platform to house "a compelling streaming sports service."
In March, Pete Distad, who previously worked at Apple (AAPL) and was responsible for the business, operations and global distribution for Video, Sports and Apple TV+, was named CEO of the new sports streaming service joint venture.
In May, Distad unveiled the future brand identity for the platform, Venu Sports.
On August 1, Venu Sports announced that the service will be available at a launch price of $42.99 per month, with a seven-day free trial. "Anyone signing up for Venu's launch price will be able to receive the service for that same price for 12-months from time of sign-up, with the ability to cancel at any time. Targeted at sports fans outside the traditional pay TV bundle, Venu is planning a launch in the U.S. in the fall and will offer thousands of live sports events from all the major professional sports leagues and top college conferences. The streaming service will provide access to 14 live sports channels and an expansive library of on-demand content from the collective companies' portfolios of sports networks and ESPN+," the service stated.
HULU: In late March, Disney added Hulu to Disney+ after beta testing the integration.
In May, The Wall Street Journal's Amol Sharma, Lauren Thomas, and Jessica Toonkel reported that Disney and Comcast's NBCUniversal had hit an impasse in their discussions to resolve ownership of Hulu, with the companies significantly disagreeing over how to value the streaming service. The companies are in the late stages of a complex process to determine how much Disney, which owns two-thirds of Hulu, should pay to acquire the remaining one-third stake held by Comcast, noted the report, which added that both companies have hired banks to appraise Hulu's total value and the prospect of a court battle is being raised. Comcast's side has valued Hulu at north of $40B, while Disney's estimate was around $27.5B, according to people familiar with the situation.
CONSENSUS: In terms of overall results for the fiscal third quarter, analysts are calling for Disney to report total revenue of $23.07B. The consensus Q3 earnings forecast stands at $1.19 per share, according to LSEG Data and Analytics. For the September-end quarter, analysts' consensus currently calls for revenue of $22.59B and for the "House of Mouse" to post a profit of $1.13 per share, according to data from LSEG.
SENTIMENT: Check out recent Media Buzz Sentiment on Disney as measured by TipRanks.
