How Damaging Has Coronavirus Been for Disney (DIS) Q3 Earnings?

Entertainment giant The Walt Disney Company DIS is slated to report third-quarter fiscal 2020 results on Aug 4, after the closing bell. Unquestionably, Disney+ streaming services are expected to have seen an uptick in usage in the June quarter. After all, the lockdown measures imposed to curtail the spread of the virus compelled people to stay at home and binge on online videos.  As of early May, the Disney+ app had 54.5 million subscribers across the world, just six months post its launch. In comparison, Netflix added only 10.09 million paid subscribers worldwide in second-quarter 2020.  Disney released the much-anticipated American science fantasy adventure film, Artemis Fowl, on the streaming platform during the to-be-reported quarter. Disney and Pixar's “Onward,” by the way, was added to the streaming content after the movie’s theatrical run was hampered by the closing of theatres in the June quarter amid the pandemic.  In fact, Disney pushed most of its movies that were released in theatres to the streaming medium in order to drive Disney+ subscriptions. To top it, Disney+ debuted in Japan on Jun 11, which surely expanded its subscriber base. Disney’s streaming service was launched in Japan via partnership with local telecom behemoth NTT Docomo. But the pandemic has impacted Disney’s overall revenue picture due to amusement park closures, film delays, sport cancellations and a weak advertisement business. Disney’s the Parks, Experiences and Products division was the largest revenue-generating source for quite some time. But thanks to the COVID-19 outbreak, it is no longer the largest. Business closures and stay-at-home mandates, especially in the United States, most likely had a negative impact on revenues for the Parks, Experiences and Products segment in the June quarter. Notably, Disney kept California and Florida parks closed in the to-be-reported quarter.  Some may argue that Disney’s theme parks in Shanghai and Hong Kong were reopened on May 11 and Jun 18, respectively. However, let’s admit, due to strict social-distancing norms, footfall was limited, thereby negatively impacting top-line growth. The Zacks Consensus Estimate for Parks, Experiences and Products segments’ revenues is currently pegged at $899 million, suggesting a substantial decline from $6.58 billion reported in the year-ago quarter. Due to shutdown of movie halls since the pandemic broke out at the beginning of this year, Disney’s Studio Entertainment segment revenues are expected to have taken a beating in the to-be-reported quarter.  The Zacks Consensus Estimate for Studio Entertainment revenues is currently pegged at $2.02 billion, indicating a decline of 47.2% from the figure reported in the year-ago quarter. What’s more, waning ad revenues due to lack of live sporting events in the said quarter certainly took a toll on American multinational basic cable sports channel, ESPN, owned jointly by Disney and Hearst Communications. And it shouldn’t be surprising if Disney faces the same fate similar to that of Twitter TWTR and Alphabet Inc. GOOGL.  While Twitter’s second-quarter 2020 advertising revenues declined 23% year over year to $561.9 million, revenues from Google Search and other areas totaled $21.3 billion, down from $23.6 billion in second-quarter 2019. 

End Result

 Investors are focused on Disney+ service and its growing subscriber base amid the pandemic. At the same time, they expect the park, movie and ad businesses to have borne the brunt in the June quarter. Analysts, thus, see overall revenues for the quarter ending June 2020 at $12.65 billion, indicating a year-over-year decline of 37.5%. The bottom line is anticipated at a loss of 43 cents, suggesting a 131.9% decline year over year. Also, the Zacks Rank #5 (Strong Sell) company currently has an Earnings ESP of -26.54%. Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Walt Disney Company Price and EPS Surprise

  The Walt Disney Company Price and EPS Surprise

The Walt Disney Company price-eps-surprise | The Walt Disney Company QuoteDiscouraging earnings performance, no doubt, will lead to a decline in the share price. Thus, the company’s expected earnings growth rate for the current year is a negative 76.1%. In fact, Disney’s shares have declined 19.6% year to date, compared with the Media Conglomerates industry’s drop of 19.4%.   

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