Driven by headline-making controversies and macro headwinds, Walt Disney (DIS) has not had a great year so far in 2022. But with the stock falling more than 40% from their highs, there are tons of reasons to expect a move much higher in the next few quarters.
The media conglomerate is set to report third quarter fiscal 2022 earnings results after Wednesday’s closing bell. Thanks to the above-mentioned concerns over consumer spending weakness and broader macro uncertainties, Disney stock has been a massive under-performer compared to the S&P 500 index. The company’s streaming platform Disney+ has been a key focus area given the downbeat subscriber results the market has witnessed from Netflix (NFLX). The latter’s recent struggles has sparked concerns as to whether Disney’s streaming still remains a strong opportunity for growth moving forward.
Disney management has targeted Disney+ global subscriber gains to be between 230 million and 260 million by the end of 2024. The market wants to know if these targets are still attainable or whether they’re the story of Disney’s own fairytale. While that subscriber goal would be impressive, if achieved, it will require significant investments which may impact profits. On the positive side, when the company reported its results in Q2, not only did it beat its subscriber forecast, reporting 7.9 million net new subscribers for Disney+, the company saw average revenue per user per month rise by 9% year over year.
The dollar changes can have a meaningful impact on the company's top and bottom line when talking about the necessary investments Disney needs to make. Elsewhere, the company is enjoying strong guest levels across Disney's theme parks. Assuming the company feels no negative effects of a slowdown in consumer spending, combined with positive momentum in its streaming business, Disney on Wednesday is poised for a top and bottom line beat, which can spark a rally in the stock.
For the three months that ended June, Wall Street expects the Burbank, Calif.-based company to earn $1.00 per share on revenue of $20.49 billion. This compares to the year-ago quarter when earnings came to 80 cents per share on revenue of $17.02 billion. For the full year, ending October, earnings are projected to rise 95% year over year to $3.94 per share, while full year revenue of $81.81 billion would rise 37.9% year over year.
The projected full-year revenue growth of 38% is an improvement of four percentage points since the second quarter. This suggests increased optimism not only about the company’s business recovery prospects, but also the expected success of Disney’s streaming platform. 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.
In the second quarter the company reported revenue of $19.2 billion, which rose 29% year over year. Notably, the revenue total was a milestone given that it reached pre-pandemic level. However, the company’s EPS of $1.19, while it rose 37% year over year, it was still more than 30% below pre-pandemic levels. The Parks, Experiences, and Products segment was a big driver of the earnings beat, suggesting that segment has not felt any impact of an economic slowdown.
During the quarter, the Parks, Experiences and Products posted operating income of $1.8 billion, driven by profit margins of 26%, which was an improvement of two percentage points from 2019. Sustained growth in this segment will be important for Disney stock Wednesday as the company aims to 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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