Has the magical rise in Disney (DIS) finally come to an end? The enormous gains from the the company’s streaming success has since been overtaken by political controversy in Florida amid various headlines and ongoing criticism of Disney's management related to the "Parental Rights in Education Bill,” also known as the "Don't Say Gay" bill.
All of this has caused increased volatility in Disney shares. Down 30% year to date, the stock has fallen almost 20% in thirty days, while giving up close to 40% in six months. And if that horizon is expanded by one year, Disney stock has fallen 40%, trailing the S&P 500 in each span. The media conglomerate is set to report first quarter fiscal 2022 earnings results after Wednesday’s closing bell. Investors want to know if the recent selloff and sustained pricing pressure presents a buying opportunity, or will Disney face more pain in the quarters ahead?
Disney’s punishment persists despite the company benefiting from the return of big theatrical releases, as well as strong demand at its theme parks. What’s more, the company has enjoyed strong success thanks to its streaming platform Disney+, which has helped Disney to exceeded Wall Street’s growth expectations over the past several quarters. In that vein, Disney has also fallen in sympathy with Netflix’s (NFLX) recent downbeat earnings results and guidance. 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 March, Wall Street analysts expect the Burbank, Calif.-based company to earn $1.19 per share on revenue of $20.04 billion. This compares to the year-ago quarter when it earned 79 cents per share on revenue of $15.61 billion. For the full year, ending October, earnings are projected to rise 104% year over year to $4.12 per share, while full year revenue of $79.72 billion would rise 34.4% year over year.
The projected full-year revenue growth of 34% is important to note because it factors in the success of Disney’s streaming platform. It’s also encouraging that fiscal 2022 EPS expected is expected to rise more than 100%, and the growth rate is projected to continue at an average annual rate of 22% in the next two years. Some analysts believe that the growth projection is yet conservative given that Disney is well-positioned to capitalize from growth in both big theatrical releases and strong demand at its theme parks.
Elsewhere, the company has set a Disney+ subscriber growth target range of 230 million to 260 million in the next three years. And unlike some of its streaming rivals, Disney is well-diversified with multiple streams of revenue. In the first quarter the company beat on both the top and bottom lines, reporting revenue of $21.82 billion, which grew 34% year over year, topping Street estimates by $943 million. Q1 adjusted EPS came to $1.06 per share, or 44 cents better than consensus. With an operating income of $2.45 billion, the Parks, Experiences, and Products segment was a big driver.
The strong showing in the Parks business reverses the weakness shown in prior quarters due to disruptions caused by the pandemic, particularly the Omicron-variant surge in December. Sustained growth in this segment will be important for Disney stock Wednesday. Analysts will want to know that the growth runway for Q2 and beyond is just as strong. 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.
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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