Has the magical rise in Disney (DIS) finally come to an end? While the company has enjoyed strong success thanks to streaming platform Disney+, its shares have fallen 8% year to date, and almost 20% in six months, trailing the the S&P 500 index in both spans. Meanwhile, over the past thirty days, shares are down 8%, while the S&P 500 has fallen just 5%.
Investors who have waited on the sidelines for a better entry price might have finally gotten their chance. The media conglomerate is set to report first quarter fiscal 2022 earnings results after Wednesday’s closing bell. The market is re-assessing the company’s valuation, which had risen as if it were a growth stock, thanks to its direct-to-consumer (DTC) initiative with Disney+. However, with the company’s success being often associated with the so-called streaming wars, Disney stock has become a victim of this narrative, falling in sympathy to Netflix’s (NFLX) recent downbeat earnings results and guidance.
Armed with not only its branded content, but also from its extensive library of consumer favorites from Pixar, Marvel, Star Wars and National Geographic, among others, Disney+ has transformed the company into a DTC powerhouse that has tons of firepower to better compete with the likes of Apple (AAPL), Amazon (AMZN) and the aforementioned Netflix. The company has set a Disney+ subscriber growth target range of 230 million to 260 million in the next three years. And unlike Netflix, Disney is well-diversified with multiple streams of revenue.
While that subscriber goal would be impressive, if achieved, it will require significant investments which may impact profits. On Wednesday investors will want more details about that long-term growth strategy. So it remains to be seen whether the streaming wars narrative persists beyond this quarter. Meanwhile, Disney has exceeded Wall Street’s growth expectations over the past several quarters. On Wednesday investors will nonetheless want more details about Disney’s long-term growth strategy to assess its true valuation.
For the three months that ended December, Wall Street analysts expects the Burbank, Calif.-based company to earn 62 cents per share on revenue of $18.87 billion. This compares to the year-ago quarter when it lost 32 cents per share on revenue of $16.25 billion. For the full year, ending October, earnings are projected to be $3.80 per share, up from $2.02 a year ago, while full year revenue of $74 billion would rise 24.6% year over year.
The projected full-year revenue growth of 24.6% is important to note because it factors in the success of Disney’s streaming platform. Aside from growth deceleration, the market has grown concerned about Disney’s pricing leverage and its implication in the quarters ahead. In Q4, Disney+ achieved an average revenue per user per month of $4.08 which was a slight decline from $4.16 in the third quarter. Other parts of the business such as Media and Entertainment were also disappointing.
While Parks, Experiences and Products posted a Q4 revenue increase of 99% to $5.45 billion, that segments saw operating income decline 40%. Progress on these fronts will be key drivers of the stock Thursday. Investors will also want assurances that the company can reach its Disney+ subscriber goal of 230 million to 260 million in the next three years. There has been a slight growth deceleration which was noticeable from Q3 to Q4. After a 12% subscriber jump in Q3 to 116 million, the growth slowed to less than 2% in Q4 to 118.1 million. Disney will need to show that it can reverse the trend.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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