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Disney (DIS) to Report Q3 Earnings: Here's What to Expect

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The Walt Disney Company (DIS - Free Report) is set to report third-quarter fiscal 2021 results on Aug 12, after market close. The House of Mouse faced massive losses during the pandemic when its core theme parks, cruises, and hotels were forced to shut down. However, reopening efforts brought back several enthusiasts in the to-be-reported quarter. Along with that, Disney’s top releases and an array of series in Disney+ are likely to have boosted its top line.

Park Reopening & Subscribers to Boost Top Line

The Walt Disney World Resort and Disneyland Park, in Florida and California, eased restrictions in April, boosting attendance at the theme parks. There were reports of long lines in front of Space Mountain, Tomorrowland and Epcot. However, with capacity restrictions still in place, footfall is still not at the maximum.

Nonetheless, Disney+ had kept the house of mouse afloat during the pandemic, and viewers were hooked onto its range of series and movies in the to-be-reported quarter. The conglomerate has comfortably increased costs on subscription from $7 per month in March to $8 in April, a growing source of revenue, which undoubtedly should get reflected in the to-be-reported quarter results, backing Disney’s confidence in its streaming offerings. And why not? Disney’s Marvel Studio & Pixar has been producing fan-favorite hits since the Infinity Sagaand in the quarter, fans glued onto series like The Falcon and the Winter Soliderand Loki. Disney also released Cruella in theaters and on Disney+ Premier Access on May 28, and Pixar’s Lucadirectly on Disney+ on Jun 13.

As of Apr 3, Disney+ had 103.6 million paid subscribers just in 18 months from its launch and Chief Executive Bob Chapek forecasts 230 to 260 million subscriber additions by 2024.  Analysts expect the Disney+ subscriber count to hit 113 millionin the to-be-reported quarter.

The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s is pegged at $16.82 billion, suggesting 42.8% growth year over year, with earnings expected at 57 cents per share, calling for a 612.5% year-over-year jump.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors to Weigh

While Disney’s arsenal of theme parks, cruise ships, and blockbuster movies has been its strength in the past, the pandemic has caused immense damage to its revenues. The Park segment accounted for around 38% of revenues (for the fiscal year ended Sep 28, 2019) and despite reopening initiatives with capacity limitations, revenue contribution fell to 21% in the first six months of this year. The surge of delta variant cases forced Disney to reinstate the indoor mask mandate for visitors, which eventually caused a decline in the park business. Disney’s cruise line is also suffering immense losses as operations remained closed in the quarter.

Although the streaming service holds the potential to boost profits, the house of mouse still relies heavily on theme park operations. The stay-at-home restrictions are gradually easing globally, and streaming companies are facing challenges in attracting subscribers. Disney’s closest competitor in the streaming line, Netflix, Inc. (NFLX - Free Report) , added 1.54 million paid subscribers globally in second-quarter 2021. While the number of new subscribers beat the consensus estimate of 1.19 million, it is much lower than the previous quarter’s 3.98 million, which could not meet expectations.

Summing Up

While reopening efforts are surely going to push revenues higher in the park and hotel segment, setbacks from limited operations and capacity restrictions, closure of cruise line services, and low box-office releases will be reflected in the earnings report.

Investors are also concerned about the rise in streaming competition, and there are chances that many subscribers may have already joined other services like AT&T Inc.’s (T - Free Report) HBO Max and Comcast Corporation’s (CMCSA - Free Report) Peacock, which might have impacted Disney’s all-inclusive revenues in the to-be-reported quarter. The stock has lost 2.3% so far this year despite hitting an all-time high in March.


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