Market Overview

9 November 2023

Disney Raises New Hopes

The Walt Disney Co market value bounced by more than 4% in pre-market trading on November 9 in the wake of the latest quarterly report. Its share price jumped after a few months of stagnation near pandemic lows when many feared extended subscriber loss. This fear grew stronger on a recent wave of price increases against growing costs related to Hollywood strike and a mixed performance in business returns. 

Q3 numbers revealed that there was a moderate contraction in both earnings and total revenues, but earnings fell below expectations. The House of Mouse reported EPS (equity per share) at $0.82 against an expert pool forecast of $0.70, compared to $0.98 on average for the previous three quarters. Q3 2023 sales were at $21.24 billion vs $21.37 of Wall Street consensus estimates, extending a step-by-step decline from $23.5 billion in the Christmas quarter of 2022 to $21.82 billion and $22.33 billion during the first two quarters of 2023.

The basic conclusion could be made that theme parks and direct-to-consumer streaming services boost earnings and offset the lack of advertisement flows.

The so-called Experiences segment, which mostly covers theme parks, resorts, cruise lines and souvenir shops, reported a $1.8 billion in operating income, which was 31% higher YoY. Disneylands in Shanghai and Hong Kong were shining against some weaker results at Walt Disney World in Florida. The Entertainment unit, which includes company's television networks, films studio, its Disney+, Hulu and ESPN+ services, posted an operating income of $236 million vs its losses of $608 million in Q3 2022.

Disney+ alone added about 7 million subscribers in the recent quarter, thanks to the next season of "Guardians of the Galaxy Vol. 3" and the original series "Star Wars: Ahsoka." Disney+ and Disney+ Hotstar have now 150.2 million subscribers, exceeding Visible Alpha's independent estimate of 147.4 million.

Disney's owned ABC network and other TV stations reported a drop in ad sales and declining number of viewers, as its summer movies like "The Haunted Mansion" underperformed. Yet, sport channels recovered to nearly $1 billion of operating income, up 14% YoY, with ESPN achieving its best overall viewership in four years, and its highest viewership in the 18-to-49-year-old demographic group, which is particularly appreciated by advertisers.

Walt Disney plans to reinstate a dividend payment to shareholders by the end of this year, acting CFO Kevin Lansberry said. Disney Chief Executive Bob Iger mentioned the company would achieve $7.5 billion in annualized savings, due to aggressively managing costs, while moving "beyond this period of fixing and began building our businesses again".

Even though this was a one-quarter rebound of effectiveness so far, there is a bright contrast to other traditional peers like Warner Bros Discovery (WBD), which happened to be less resilient to actors' and script writers' strikes and other headwinds, so that WBD shares lost nearly 20% of its market cap at the same day. Disney's business seems to have more strength and a good opportunity to extend its share price gains beyond the psychological resistance of $100 per share, as the promising Christmas quarter is ahead. This is a traditional time for family movies watching, when parents spend holidays with children.


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Lysakov Sergey
Market Focus
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