Disney earnings: Solid streaming and theme park figures while ad segment struggles – Stock Market News
Disney’s diversification efforts have indeed materialised enabling it to perform well during different economic cycles. The success of its streaming business provided significant income streams when the company was forced to shut down its theme parks after the Covid-19 outbreak, whereas the strong rebound of its theatres and resorts has offset the post-pandemic slowdown of its media division. Although the firm’s core financial figures are continuously growing in the past few quarters, surprisingly the stock price has lost almost 35% since the start of the year.
Most of this weakness is attributed to increasing market fears that the firm’s streaming segment will face significant difficulties to attract new subscribers in a period of reduced demand and intensifying competition. Moreover, in the upcoming months, consumers are likely to get more squeezed by the persistent inflationary pressures and the liquidity drain from central banks, which could curtail their spending on discretionary items like amusement parks and leisure trips.Focus on streaming
The fact that Disney’s share price has fallen dramatically despite the rebound in its on-site facilities clearly indicates that markets seem to be more focused on the firm’s streaming segment performance. That being said, analysts are expecting 8.5 million net new subscriptions in the third quarter, with Netflix’s recent outperformance in this key metric hinting that a potential negative surprise could have a devastating outcome for Disney’s stock.
Apart from that, Meta’s and Alphabet’s earnings announcements triggered rising concerns that ad business will most likely suffer a slowdown in the months to come as recession fears loom. If that scenario materialises, Disney is likely to receive a significant blow, considering that its ad revenue is already set to fall by 33% in Q3.Risks resurface for on-site activities
Disney’s attractions all around the world have been working in full gear since the global economic reopening, but headwinds keep piling up. In the September quarter, revenue generated from US theme parks is expected to experience a pullback due to the impact of Hurricane Ian. Moreover, a renewed phase of lockdowns in China forced the Shanghai Park to shut down, with more parks prone to closing as the Chinese government insists on its zero-Covid policies. Finally, the strengthening dollar continues to constantly devalue the income generated from theme parks overseas.Solid quarter
Disney is expected to report solid fundamentals as the traffic in its amusement parks and theatres has rebounded to pre-pandemic levels, while subscriptions for Disney+ are posting consecutive quarterly increases. The world's leading entertainment conglomerate is anticipated to post revenue of $21.24 billion for the third quarter, according to consensus estimates by Refinitiv IBES, which would represent a year-on-year growth of 14.64%. Additionally, earnings per share (EPS) are set to decrease from $1.09 in the previous quarter to $0.54, but jump 47% on an annual basisValuation remains elevated despite sell-off
Although Disney is anticipated to face macroeconomic risks due to the combination of monetary tightening and persistently high inflation, investors and markets appear confident that it can achieve its growth targets. This optimistic outlook is also reflected in its hefty forward price to earnings ratio of 19.0x, which is substantially higher than the consumer discretionary sector’s average of 9.1x. This number denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings – the higher it is, the more 'expensive' the stock.Can Disney’s battered stock recover?
Disney's share price has been in a sustained downtrend since the beginning of the year, but lately it is exhibiting some signs of recovery. Even though the latest rebound faltered after Powell’s hawkish remarks, an impressive earnings card could alter the sentiment back to positive.
In the bullish scenario, solid financials could propel the price towards the recent high of $108.70 Successfully breaching this region, the price might then test the $117.50 barrier.On the flipside, the bears might aim for the 97.85 hurdle, a violation of which could turn the spotlight to the 2022 bottom of $90.20.
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.