Earnings season is coming to an end with more than 3/4th of the market having already released their 2nd quarter results. Disney (DIS - Free Report) is set to release its June quarter earnings after the bell today and investors are on the edge of their seat waiting for more color on the anticipated Disney+ platform, set to hit the consumer markets later this year.
Disney is not typically a big mover on earnings releases with the past 6 reports having an average subsequent price impact of less than 1%. DIS analysts are estimating an EPS of $1.76, which would represent a 6% year-over-year decline. Sales, on the other hand, are expected to be $21.7 billion, the largest in the history of the company with the recent 21st Century Fox acquisition boosting these figures.
The 21st Century Fox acquisition is going to have its initial merger costs, but long-run synergies from the increased scale and content should prove profitable. I believe that the full potential of this merger hasn’t been entirely priced into most analysts’ estimates.
Disney is evolving to meet the consumer shift in media consumption. There are a growing number of cord-cutters who would prefer to view their favorite shows on-demand and avoid annoying commercials. Disney launched ESPN+ last year for users to stream live sports, and just obtained a majority stake in the Hulu streaming platform from the Fox acquisition.
Disney is set to launch Disney+, it’s flagship streaming platform, on November 12th, and this is expected to shake up the streaming category. DIS surged 12% the day this platform was unveiled while NFLX dipped 4.5%. Below is DIS vs. the S&P 500 year-to-date performance chart.
Disney’s acquisition of Fox earlier this year was the final piece of the content puzzle that Disney needed to launch the Disney+ streaming platform. They will offer 90 years of quality content and are developing a number of TV shows that will be exclusively on this streaming platform.
This pivot has already begun to thrust this reliable value stock back into growth, sending valuations surging. I expect that valuations will continue to grow as Disney+ gains traction domestically as well as internationally.
Analysts are expecting Disney+ to have 130 million subscribers in 5 years. This would rival Netflix’s 150 million users. International consumers are very familiar with the already globalized Disney brand. I believe that Disney+ will swiftly spread across the globe.
The Disney+ subscription will cost only $6.99 a month, which is almost half of Netflix’s basic HD plan. Analysts are predicting an 80% customer overlap with 20% of potential Disney+ customers not being interested in Netflix according to Raymond Jones.
The competition is the space is fierce with the spaces pioneer Netflix (NFLX - Free Report) and early adapters like Amazon (AMZN - Free Report) already holding significant market share. Disney is late to the streaming game, but their top-tier original content, affordable price point, and international brand recognition will allow it to impose a commanding presence in the space.
This evening’s earnings report will give us more clarity on how their current direct-to-consumer platforms (Hulu and ESPN+) are preforming thus far.
I believe that Disney+ is going to be the driving force of DIS’s topline moving forward with its current broadcasting and media segment seeing recent negative bottom-line growth. Look for management guidance and further color on this streaming platform and what we should initial expect for costs and sales.