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Can Disney Bounce Back After Dismal Q3 Earnings?

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The Walt Disney Company’s (DIS - Free Report) earnings for the quarter ended June 2019 failed to live it up expectations. The Mouse House’s quarterly losses were largely attributable to investments in ESPN+ and Disney+ and massive box office losses because of Dark Phoenix’s underperformance.

However, the picture isn’t all bleak for the company. The arrival of Fox’s high-grossing movies under the Disney umbrella along with Disney’s very own impressive pipeline of big budget movies could boost the media giant. Also, the company looks ready to offer fierce competition in streaming media arena with its latest offering, Disney+.

Q3 Earnings & Revenues Disappoint

Disney reported fiscal third-quarter earnings of $1.35 per share, which missed the Zacks Consensus Estimate of $1.76. The company’s revenues of $20.25 billion also disappointed, missing the Zacks Consensus Estimate by 6.61%.

The company’s quarterly results were severely hurt by the high programming costs at ESPN, which were mostly due to a rise in contractual rate and production costs. In addition, the company continued to invest heavily in ESPN+ and the upcoming streaming service Disney+, which widened the operating loss for its direct-to-consumer segment.

The Mouse House’s consolidation of Hulu also played a major role here. In addition, the ongoing U.S.-China trade war weighed heavily on Disney’s income from resorts and parks. This was because tourism and consumer confidence in China were severely affected in the quarter ended June 2019.

Dark Phoenix’s Losses Hurt Earnings

Lastly, the massive failure of Dark Phoenix at the box office played a role in Disney’s disappointing earnings and revenues. The movie was obtained by Disney after it acquired Fox’s entertainment business for $71 billion in March.

Dark Phoenixgenerated $65 million in revenues in the United States and $186 million abroad. It took about $200 million to produce the movie, minus marketing costs.

Road Ahead Looks Promising

Despite the bumpiness experienced by Disney in fiscal Q3, it isn’t all bad news for the company. Although Fox’s Dark Phoenix didn’t do well, several movies such as Avatar and Planet of the Apes boosted the bottom line. These franchises will continue to boost profits for Disney going forward.

Disney has a great many big budget movies lined up for release in the next 18 months, which could gross high. Fox’s television segment is also expected to help the Mouse House strengthen its TV slate worldwide. Disney currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Disney+ to Improve Media Giant’s Fortunes

Disney+ is all set for launch in November. Although the streaming service may not have as much content as Netflix (NFLX - Free Report) , it has offerings from its own productions, Marvel, Pixar and Star Wars, which should attract subscribers. The company is also feeding original content in Disney+, along with acquiring content from the likes of CBS TV Studios.

In fact, the company is counting on its marketing strategy for gaining a strong subscriber base and revenues. Disney is clubbing Disney+, ESPN+ and an ad-supported Hulu into a $12.99 per month subscription plan. This is the same cost as Netflix’s standard subscription and thus could pose serious competition to the Stranger Things producer.

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