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Will Disney ETFs Suffer on Mixed Earnings Due to Coronavirus?
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The Walt Disney Company (DIS - Free Report) reported mixed third-quarter fiscal 2020 results on Aug 4. Earnings beat estimates whereas revenues missed the same. Hurt by the coronavirus crisis, the metrics declined year over year. However, shares of Disney have gained as much as 8.8% since the earnings release due to investor optimism surrounding the earnings beat (see: all the Consumer Discretionary ETFs here).
Earnings in Focus
Adjusted earnings of 8 cents per share surpassed the Zacks Consensus Estimate by 118.6%. However, the figure declined 94% from the year-ago quarter. Revenues of $11.78 billion declined 40.3% from the year-ago quarter and missed the consensus mark by 6.9%. The pandemic has affected segmental operating income by $3 billion, net of cost mitigations. In fact, due to the pandemic, Disney’s domestic parks and resorts, cruise line business and Disneyland Paris were shut down in the reported quarter. Shanghai Disney Resort re-opened in May and Hong Kong Disneyland Resort, despite reopening in late June, was closed again in July.
The company also had to pause film and TV production and close retail stores amid the coronavirus crisis. Theatrical distribution was affected by the pandemic as theaters remained shut domestically and internationally.
Disney+ Sees Impressive Subscription Growth
Disney+, which was launched on Nov 12, 2019, added 57.5 million paid subscribers as of Jun 27. As of Aug 3, Disney+ subscriber base crossed 60.5 million. During the quarter under review, Disney launched Disney+ in India through its Disney+ Hotstar service in France through a strategic collaboration with Canal+, and in Japan via a limited launch with NTT DOCOMO.
Last November, Disney began offering a bundled subscription package of Disney+, ESPN+ and Hulu, which has a lower average retail price per service as against the average retail price of each service on a standalone basis. The average monthly revenue per paid subscriber for Disney+ was $4.62.
Guidance
Disney expects total capital expenditure for fiscal 2020 at about $700 million. Moreover, the company expects DTC and the international segment to see roughly $1.1 billion in operating losses for the fourth quarter. However, DTC loss is expected to improve by nearly $100 million year over year, driven by lower losses at Hulu and ESPN+, partially offset by continued investment in Disney+. Meanwhile, by year-end, Disney+ is expected to be available in nine of the top 10 economies.
Commenting on the earnings results and the pandemic, Disney CEO Bob Chapek said, “despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses.”
ETFs in Focus
The mixed results might have a huge impact on ETFs, especially those that have the largest allocation to this media and entertainment conglomerate.
iShares Evolved U.S. Media and Entertainment ETF
This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 90 stocks in its basket, Disney occupies the second position with a 5.1% share. The fund has accumulated $10.8 million in its asset base and charges 18 bps in annual fees. However, the fund has lost around 0.5% since the earnings release (read: ETFs to Play New Trends Triggered by COVID-19).
Communication Services Select Sector SPDR Fund (XLC - Free Report)
This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $10.21 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Disney occupying the fifth position at 4.7%. The product charges 13 bps in annual fees. The fund has lost around 0.2% since the earnings release (read: More Run for Tech ETFs After Sizzling FAAG Earnings?).
This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 153 stocks in its basket, with Disney taking the third spot at 4.6%. The fund has amassed $1.02 billion in its asset base. It charges 42 bps in annual fees from investors. The fund has gained around 0.7% since the earnings release (read: Online Sales to Boost Amazon Q1 Earnings: ETFs to Buy).
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Will Disney ETFs Suffer on Mixed Earnings Due to Coronavirus?
The Walt Disney Company (DIS - Free Report) reported mixed third-quarter fiscal 2020 results on Aug 4. Earnings beat estimates whereas revenues missed the same. Hurt by the coronavirus crisis, the metrics declined year over year. However, shares of Disney have gained as much as 8.8% since the earnings release due to investor optimism surrounding the earnings beat (see: all the Consumer Discretionary ETFs here).
Earnings in Focus
Adjusted earnings of 8 cents per share surpassed the Zacks Consensus Estimate by 118.6%. However, the figure declined 94% from the year-ago quarter. Revenues of $11.78 billion declined 40.3% from the year-ago quarter and missed the consensus mark by 6.9%. The pandemic has affected segmental operating income by $3 billion, net of cost mitigations. In fact, due to the pandemic, Disney’s domestic parks and resorts, cruise line business and Disneyland Paris were shut down in the reported quarter. Shanghai Disney Resort re-opened in May and Hong Kong Disneyland Resort, despite reopening in late June, was closed again in July.
The company also had to pause film and TV production and close retail stores amid the coronavirus crisis. Theatrical distribution was affected by the pandemic as theaters remained shut domestically and internationally.
Disney+ Sees Impressive Subscription Growth
Disney+, which was launched on Nov 12, 2019, added 57.5 million paid subscribers as of Jun 27. As of Aug 3, Disney+ subscriber base crossed 60.5 million. During the quarter under review, Disney launched Disney+ in India through its Disney+ Hotstar service in France through a strategic collaboration with Canal+, and in Japan via a limited launch with NTT DOCOMO.
Last November, Disney began offering a bundled subscription package of Disney+, ESPN+ and Hulu, which has a lower average retail price per service as against the average retail price of each service on a standalone basis. The average monthly revenue per paid subscriber for Disney+ was $4.62.
Guidance
Disney expects total capital expenditure for fiscal 2020 at about $700 million. Moreover, the company expects DTC and the international segment to see roughly $1.1 billion in operating losses for the fourth quarter. However, DTC loss is expected to improve by nearly $100 million year over year, driven by lower losses at Hulu and ESPN+, partially offset by continued investment in Disney+. Meanwhile, by year-end, Disney+ is expected to be available in nine of the top 10 economies.
Commenting on the earnings results and the pandemic, Disney CEO Bob Chapek said, “despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses.”
ETFs in Focus
The mixed results might have a huge impact on ETFs, especially those that have the largest allocation to this media and entertainment conglomerate.
iShares Evolved U.S. Media and Entertainment ETF
This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 90 stocks in its basket, Disney occupies the second position with a 5.1% share. The fund has accumulated $10.8 million in its asset base and charges 18 bps in annual fees. However, the fund has lost around 0.5% since the earnings release (read: ETFs to Play New Trends Triggered by COVID-19).
Communication Services Select Sector SPDR Fund (XLC - Free Report)
This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $10.21 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Disney occupying the fifth position at 4.7%. The product charges 13 bps in annual fees. The fund has lost around 0.2% since the earnings release (read: More Run for Tech ETFs After Sizzling FAAG Earnings?).
iShares U.S. Consumer Services ETF (IYC - Free Report)
This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 153 stocks in its basket, with Disney taking the third spot at 4.6%. The fund has amassed $1.02 billion in its asset base. It charges 42 bps in annual fees from investors. The fund has gained around 0.7% since the earnings release (read: Online Sales to Boost Amazon Q1 Earnings: ETFs to Buy).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>