The world-renowned Walt Disney Company (DIS - Free Report) is releasing its September quarter (fiscal Q4) results after the bell tonight (November 7th). DIS surged to new all-time highs in April following its Disney+ announcement but has traded sideways since then. Disney investors are hoping that Q4 earnings will be the catalyst that drives these shares back into growth.
DIS is typically not a big mover on earnings with the last 8 quarters demonstrating an average move of 1.44% (4 up, 4 down). Zacks Consensus estimates for Q4 earnings show an EPS of $0.95 on sales of $19.03 billion. This would represent a 33% year-over-year increase in sales but a 36% decline in earnings per share.
Disney is still in the midst of integrating 21st century Fox into its enterprise, and the costs associated with this are negatively impacting the company’s short-term bottom-line. In the long-run, the synergies between these companies should propel larger profitability through economies of scale.
Disney is preparing to release another substantial revenue driver that has propelled this stock back into growth valuations. This revenue pivot is going to come with sizable costs just as any growing business does, but it is well-positioned for long term returns.
This is the final earnings before the release of Disney+, which is hitting the markets on November 12th.
Disney’s years of original content and strategic acquisitions have led them to the release of this international streaming service. Whether the company was planning this or not, its evolution made this more or less a foregone conclusion.
This new streaming platform is expected to shake up the streaming space in a big way. Netflix (NFLX - Free Report) investors are getting nervous as its user growth experiences faster than expected deceleration prior to the Disney+ release.
Disney+ is going to have exclusive rights to all of its productions as they are pulled from other streaming services. This service is going to be in the basket of essential streaming platforms in the household portfolio of services.
Almost all of Netflix’s future growth is coming from international users, and Disney+ poses a significant threat. Disney films are typically international hits making it a globally distinguished brand. Disney Plus is also to be released at a sizable discount to Netflix, making it a much more attractive option when international consumers are deciding between the two services.
The expectations for the earnings report tonight have been hampered quite a bit following a substantial Q3 miss in August. This was due to the larger than expected costs associated with merging 21st Century Fox into Disney’s framework.
Analysts are now expecting these costs to be spilled over into the September quarter earnings. This might have created a springboard for tonight’s earnings if the costs were overstated. This is a short-term issue, and DIS only marginally fell from the last earnings release.
I don’t expect a big move on these earnings as investors are looking to the future of this company, which is going to be more dependent on the performance of Disney+. Fiscal Q1 earnings will be much more telling, as it is the first quarter that will reveal the new streaming service’s market traction.
Look for management’s commentary about Fox’s integration as well as any further color on Disney+.
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