Shares of Walt Disney (DIS) have lost their magic, having fallen 6% year to date, trailing the 24% rise in the the S&P 500 index. Meanwhile, over the past six months and thirty days, the shares are down 8% and 2%, respectively. During that span the S&P 500 index has risen 12% and 9%, respectively.
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 fourth quarter fiscal 2021 earnings results after Wednesday’s closing bell. 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 direct-to-consumer (DTC) powerhouse that has tons of firepower to better compete with the likes of Apple (AAPL), Amazon (AMZN) and, of course, Netflix (NFLX).
Disney’s current valuation, however, suggests it is a growth stock. But is it? The reality is that the DTC segment, while having exceeded Wall Street’s growth expectations, is still a relatively small component compared to the company’s total revenue. The company has set a Disney+ subscriber growth target range of 230 million to 260 million in the next three years. 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.
For the three months that ended October, Wall Street analysts expects the Burbank, Calif.-based company to earn 44 cents per share on revenue of $16.22 billion. This compares to the year-ago quarter when it lost 20 cents per share on revenue of $14.71 billion. For the full year, earnings are projected to be $2.12 per share, up from $2.02 a year ago, while full year revenue of $67.72 billion would rise 3.6% year over year.
The projected full-year growth of less than 4% is part of the issue that has impacted Disney stock over the past six months. As noted, the shares have lost almost 15% since reaching an all-time high of $203 in March. There’s the performance of Disney’s collective businesses which includes parks, movies, television networks, and retail stores. How well can these collective businesses perform over time?
It stands to reason that there is more upside as theme parks reopen around the globe, and as the movie pipeline strengthens as theaters reopen. Progress on these fronts will be key drivers of the stock Thursday. In the third quarter, Disney reported EPS of 80 cents, easily beating the consensus estimate by 25 cents, while revenue of $17.02 billion surged 44% year over year, topping estimates by $261 million. Disney+ subscribers hit 116 million, beating the 112.8 million expected. Notably, the 116 million paid subscribers more than doubled the 57.5 million from a year ago.
While Disney+ is still adding subscribers at a nice pace, there’s still the question of whether the company can reach its goal of 230 million to 260 million in the next three years. In the meantime, Disney stock was getting the premium of Netflix. The market has begun to recalibrate that valuation, highlighting the importance of Disney+. On Wednesday investors will want upbeat commentary about the streaming business' subscriber targets as well as profitability goals.
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.
Read Richard's Bio