Shares of Disney (DIS), which hit an all-time high several months ago, have hit a wall. While the stock is up 20% year to date, it has fallen 2% over the past six months and now trails the 23% year-to-date rise of the S&P 500 index.
The company is set to report fourth quarter fiscal 2019 earnings results after Thursday’s closing bell. Though an argument can be made that the media conglomerate remains undervalued, it will need to first answer whether it can it take a meaningful chunk out the streaming market currently dominated by Netflix (NFLX). That DIS stock has bested the 7% rise for Netflix assumes Disney will be a streaming force to be reckoned with.
What’s more, as the majority owner of streaming service Hulu, Disney looks well-positioned in the streaming market, even more so now that the company owns Fox’s entertainment assets. That, combined with its plans to launch its highly anticipated Disney+ service on Nov. 12 a cost of $6.99 a month or $69.99 annually, makes it hard to imagine anything being more important on the conference call Thursday than Disney affirming its streaming capabilities.
For the three months that ended September, Wall Street analysts expects the Burbank, Calif.-based company to earn 95 cents per share on revenue of $19.19 billion. This compares to the year-ago quarter when earnings came to $1.48 per share on revenue of $14.31 billion. For the full year, earnings are projected to decline 19% year over year to $5.71 per share, while full year revenue of $69.61 billion would rise 17% year over year.
The company is in the midst of a major transition, namely integrating Fox's assets, which Disney closed the second quarter. While that deal stands to be a significant long-term advantage in terms of content streaming, Disney has yet to impress with its ability to integrate that deal. In its fiscal Q3 — its first quarter as owner of Fox — Disney’s earnings results weren’t well received as both the top and bottom lines fell short of consensus estimates, sending the stock down more than 5%.
What’s more, Q3 adjusted earnings were $1.35 per share, missing estimates by 37 cents and Q3 revenue came in at $20.2 billion, below the $21.4 billion analysts were looking for. Much of the revenue and earnings miss was attributed to weak performances at the company’s combined TV networks, film studios and international brands. On Thursday analysts will want to see the numbers improve. But the company’s streaming investments are likely to weigh on the bottom line.
The good news is, these investments will included Fox content such as National Geographic as well as other Fox properties. The Fox content, combined with Disney library titles such as Pixar, Marvel, Star Wars, among others, can immediately turn Disney into a dominant streaming force. That said, on Thursday analysts will want to know how much long-term earnings power can Disney realize during this transition and can Disney convince the market that it can grow subscribers and turn Disney+ into a profitable franchise.
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