Disney’s December quarter earnings report, set to be released after trading hours on Wednesday, will undoubtedly draw attention to the company’s streaming business and the future of its struggling cable TV networks.
Just prior to the earnings report, Disney’s ESPN unit, Fox Corp., and Warner Bros. Discovery announced plans to collaborate on a paid streaming service that will feature a wide range of sports content. The new platform is expected to launch in the fall.
This upcoming streaming service will cover both professional and college sports, including football, basketball, baseball, hockey, and soccer. Users will have the option to access the platform through a new app, allowing for bundle packages with Disney+, Hulu, and Max.
For the December quarter, Wall Street projects a revenue of $23.8 billion, a 1% increase from the same period last year. Analysts also predict earnings of $1.01 per share, slightly higher than the previous year’s 99 cents per share.
These projections include an anticipated revenue of $10.4 billion from Disney’s entertainment business segment, reflecting a 29% decrease compared to last year. This significant decline is primarily driven by an expected 60% drop in revenue from linear networks, totaling $3 billion. However, it is offset by a projected 3% growth in the direct-to-consumer business, which includes Disney+.
According to estimates compiled by FactSet, Sports revenue, mainly from ESPN, is expected to reach $4.6 billion. The Experiences segment revenue is projected to be $9 billion, a 3.3% increase primarily attributed to theme parks.
Disney Investors Await Earnings Announcement
Citi Analyst Reveals Key Focus Areas
Citi analyst Jason Bazinet, who maintains a Buy rating and $106 target price on the stock, has highlighted five key focus areas that Disney investors should pay attention to ahead of the earnings announcement.
ESPN and the Search for New Equity Partners
Bazinet notes that ESPN will be a major topic of discussion, especially regarding any progress on the search for new equity partners. Recent reports suggest that the NFL might be interested in buying a stake in ESPN.
Update on Cost Controls and Pixar’s Staff Cut
Investors will also be looking for an update on cost controls, particularly in light of recent press reports indicating that Pixar has recently cut staff by 20%.
Pending Acquisition of Hulu
Another subject of interest is an update on the pending acquisition of the one-third of Hulu that Disney does not already own from Comcast. The final price of this transaction is currently being determined through an appraisal process.
Potential Sale of Business in India
Investors will also be eager to hear the company’s discussions on the potential sale of its business in India.
Introduction of New CFO, Hugh Johnston
This earnings call will mark the first appearance of the firm’s new CFO, Hugh Johnston. Investors will be listening closely for any key messages regarding his key priorities. It is expected that the focus will continue to be on right-sizing costs and driving towards streaming profitability.
Morgan Stanley Analyst Focuses on Disney+
Morgan Stanley analyst Benjamin Swinburne’s focus is primarily on the outlook of Disney+, especially given the strong recent earnings performance of Netflix’s direct-to-consumer segment.
Shrinking Linear Networks and Expense Cuts
Swinburne is also interested in any updates on the company’s shrinking linear networks, particularly regarding expense cuts in that business.
Outlook for Strategic Changes in ESPN
Additionally, Swinburne is looking for any insights into potential strategic changes in the outlook for ESPN.
Disney Shares Under-Earnings and Under-Valued
Swinburne believes that the current stock price of Disney does not fully reflect the value of the Experiences business. He contends that the company’s media assets are currently under-earnings and under-valued.
Despite being up 7% for the year to date, Disney shares have experienced a 13% decrease over the last 52 weeks.