Disney‘s newest quarterly earnings report and convention name with administration had a lot for Wall Road to love, together with progress towards streaming income and an elevated full-year earnings forecast, however it wasn’t sufficient to maintain its shares from dropping round 10 p.c on Tuesday.
As of 12:15 p.m. E.T., Disney’s inventory was down 10.4 p.c at $104.32, making it one of many inventory’s worst days over the previous yr.
Whereas many analysts sounded upbeat notes on a number of fronts, particularly Disney’s transferring nearer to streaming profitability, the Hollywood conglomerate reported combined fiscal second-quarter earnings and a few near-term challenges, together with at theme parks. Newish Disney CFO Hugh Johnston, for instance, warned on the earnings name that regardless of “wholesome demand” at parks, “we’re seeing some proof of a world moderation from peak post-COVID journey.”
All in all, it wasn’t sufficient to spice up bullishness to new heights. And with Disney’s fill up practically 20 p.c to date in 2024 earlier than the earnings replace, effectively forward of the broad-based S&P 500 inventory index’s achieve of round 9 p.c, it appeared like it could have been too huge an ask to beat traders’ expectations so convincingly as to drive the shares even increased proper now.
Not that there wasn’t a deal with the constructive anticipated later this yr. For instance, many monetary specialists highlighted the truth that Disney narrowed its streaming loss to $18 million and even reached a $47 million revenue when excluding ESPN+, whereas reiterating that its streaming division will likely be within the black within the fiscal fourth quarter, as beforehand promised, and be a “significant future progress driver for the corporate.”
With constant streaming profitability having lengthy been an elusive objective for leisure titans, Wall Road observers, of their post-earnings commentary, touched on the success of Disney and CEO Bob Iger, who lately emerged from a bruising proxy battle, in approaching it. The newest streaming enhancements additionally come after an prolonged battle to persuade analysts that Iger’s overhaul initiatives will repay.
Here’s a nearer have a look at Wall Road specialists’ key takeaways from Disney’s newest outcomes and forecasts.
CFRA Analysis analyst Kenneth Leon on Tuesday minimize his score on Disney’s inventory from “purchase” to “maintain” and slashed his worth goal by $23 to $116. “We have now much less confidence in Disney realizing constant leads to its leisure and sports activities models,” he defined. And he highlighted that his new inventory worth goal assumes “a ahead whole enterprise worth/earnings earlier than curiosity, taxes, depreciation and amortization of 13.4 occasions, under the three-year historic common at 13.6 occasions.”
Financial institution of America analyst Jessica Reif Ehrlich reiterated her “purchase” score and $145 worth goal on Disney’s inventory on Tuesday. “Disney reported a stable fiscal second quarter with income primarily inline and working earnings modestly forward of our expectations,” she cheered. “The corporate additionally raised their fiscal yr 2024 earnings per share outlook to 25 p.c, versus at the least 20 p.c beforehand.”
The skilled highlighted that Disney’s direct-to-consumer (DTC) did higher than she had anticipated, whereas conventional TV got here in weaker. “DTC outperforms whereas linear decrease than anticipated,” she concluded within the headline to one of many paragraphs in her report. “Linear networks working earnings was $752 million (versus our $800 million) as decrease home income was pushed by decrease affiliate income as a result of non-renewal of carriage of sure networks and a decline in promoting income attributable to a decrease common viewership.”
One other grey cloud within the sky was offered by a have a look at the present quarter. “Disney now expects fiscal third-quarter experiences working earnings to be much like the prior yr which suggests working earnings round $300 million under our present forecast,” she famous.
Reif Ehrlich’s general bullish takeaway: “Disney has a set of best-in-class premier property (in content material/IP in addition to theme parks). Close to-term catalysts embody: 1) extra updates on strategic priorities for Disney, 2) an inflection in profitability in DTC.”
UBS analyst John Hodulik additionally identified combined traits, however within the headline of his report highlighted: “Earnings per share & free money move pacing forward.” He caught to his “purchase” score and $140 worth goal on Disney shares.
“DTC was worthwhile,” excluding ESPN, he wrote. “Administration expects softer DTC income within the fiscal third quarter (UBS estimate: -$52 million) attributable to Hotstar however profitability within the fiscal fourth quarter. Core Disney+ subscribers elevated by 6.3 million (UBS estimate 5.9 million; information 5.5-6.0 million), together with 7.9 million within the U.S. and Canada provides with the Constitution deal (UBS estimate 7.5 million). Hulu subs elevated by 0.5 million (UBS estimate: flat) versus 1.2 million within the fiscal first quarter.”
Hodulik additionally emphasised Disney’s elevated full-year earnings outlook however identified “combined” theme parks commentary that didn’t shock him an excessive amount of. “Disney reported stronger earnings per share and in-line revenues, whereas ahead commentary for the parks was combined attributable to increased prices from the brand new cruise ship (much like earlier launches).”
Wolfe Analysis analyst Peter Supino maintained his “peer carry out” score with out a inventory worth goal in his first take. He highlighted “higher outcomes at DTC and sports activities, and in-line experiences, partially offset by softer linear networks and content material/licensing efficiency.”
The skilled defined that linear outcomes had been “impacted by the non-renewal of carriage of sure networks by Constitution,” whereas the content material/licensing enterprise posted a quarterly loss as “income got here in weaker at $1.39 billion (consensus: $1.51 billion) as there have been no vital titles within the present quarter.”
Past Wall Road, Third Bridge analyst Jamie Lumley additionally dissected the great and the difficult in Disney’s quarterly outcomes and outlook. “Disney continues to push for streaming profitability and is making substantial progress in the direction of its objective,” he wrote. “A lack of $18 million is a large enchancment for the direct-to-consumer section that at occasions has misplaced over $1 billion 1 / 4.” He added: “The U.S. streaming market particularly is mature and troublesome to navigate, making Disney’s near-8 million Disney+ subscriber provides a really constructive signal.”
However it’s not all roses. “Disney’s enterprise is dealing with a number of challenges. $2 billion in goodwill impairments pushed by Disney’s operations in India and linear enterprise are weighing on outcomes, along with the continued cord-cutting strain that can proceed to impression Disney’s networks,” warned Lumley.
After which there’s that outdated query of who will succeed Iger. “Traders are nonetheless in search of readability on succession planning. We’ve heard from our specialists that Dana Walden is the frontrunner for the CEO function, however at this level nothing is about in stone,” highlighted Lumley. “We’d not hear any updates till 2025 as Disney’s board makes positive it finds the best candidate for the job.”