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Disney to Report Earnings Today: Here's What to Expect

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The Walt Disney Company DIS is set to report first-quarter fiscal 2020 results on Feb 4, after market close. Disney’s top releases and newest additions are likely to boost its top line. However, expenses related to the launch of the streaming business and new attractions may weigh on its bottom line.

Box Office, New Attractions and Disney+

It has been a year of blockbusters from the entertainment giant, with Avengers: Endgame ranking as the biggest grossing movie of all time in 2019. In first-quarter fiscal 2020, the two movies drew high revenues and increased footfall in the park, something that Disney was concerned about since the beginning of last year.

Among the seven billion-dollar movies released by Disney in 2019, Frozen 2 and Star Wars: Rise of Skywalker premiered in the quarter ending December 2019. Both movies have broken box-office collection records. As per Box Office Mojo, Frozen 2 has made nearly $1.50 billion to date, while Star Wars: Rise of Skywalker raked in $1.05 billion.

Additionally, sales of toys and merchandise rose on Disney’s crowd-pulling franchises that include blockbusters Marvel, Star Wars and Frozen.

A decline in the footfall in theme park had been a concern for Disney. However, new attractions that include the much-hyped Star Wars: Galaxy's Edge and Rise of the Resistance at Walt Disney World have appealed to many.

What investors are eyeing at present is the result of heavy spending on Disney’s streaming transformation. Well, Disney+ added 10 million subscribers just one day after the service was launched in the United States and two other countries, and that should certainly boost its top line.

Disney offers a comparably cheap streaming service for binge watchers at a $12.99/month bundle that includes Disney+, ESPN+, and ad-supported Hulu, which has a vast video-library.

Disney could overshadow Netflix, Inc. NFLX in the coming year. And based on a consumer survey and the tally of app downloads since launch, it looks like Disney+ has closed the year by adding roughly 25 million subscribers.

What’s more? In a survey, Disney+ subscribers claimed that nearly 9% of them had canceled their Netflix membership and nearly 29% said they had unsubscribed from other streaming services to sign up for Disney+.

The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company's sales is $21.08 billion, suggesting 37.7% growth year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Weigh on Bottom Line

Though there are several factors that might have boosted sales in fiscal Q1, the Zacks Consensus Estimate for Disney’s earnings is $1.43 per share, indicating a 22.3% decline year over year. Disney has still not been able to drop the baggage of loss from 21st Century Fox’s acquisition that it made in March 2019. The acquired studio is expected to report an operating loss of nearly $60 million.

Coming to the concerns related to footfall, the political unrest in Hong Kong had impacted Hong Kong Disneyland, and the company expects a decline of nearly $80 million in operating income. Additionally, costs related to new attractions may also hurt its bottom line, especially since the company had to hire labors at higher wage rates. 

Summing Up

Even though cost of launching Disney+ and new attractions are weighing on Disney’s bottom line in fiscal Q1, it will help the company soar in the future. In fact, as the entertainment giant keeps adding newer attractions and expanding its franchise portfolio through acquisitions, Disney World may hit the 100 million visitors per year mark soon.

And thanks to the line-up from Marvel, Star Wars and Pixar studios’ new Disney+ shows will also keep hauling in subscribers to beat streaming service dominator Netflix and new rivals like Comcast Corporation’s (CMCSA - Free Report) Peacock and AT&T Inc.’s T HBO Max.

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