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Driven by fears over weak consumer spending and the likelihood of a recession, shares of Walt Disney (DIS) have been under heavy pressure over the past year, falling almost 50% from their 52-week high of $157 to a low of $84. For investors who were waiting on the sidelines, the decline was a magical opportunity to get shares at a cheap price.
The prospects for Disney has seemingly changed in recent months. In fact, 2023 is looking like a strong rebound year for the stock, which has already surged 30% year to date, compared with an 8% rise in the S&P 500 index. And there are tons of reasons to expect a sustained move higher in the next few quarters. The media and entertainment conglomerate is set to report first quarter fiscal 2023 earnings results after Wednesday’s closing bell. Disney’s streaming platform Disney+ remains a key focus area given the upbeat subscriber results the market has witnessed from Netflix (NFLX).
Netflix’s strong Q4 results has sparked optimism within the streaming landscape, suggesting Disney+ may remain a strong growth opportunity for the company in the next few quarters. Disney’s management has targeted Disney+ global subscriber gains to be between 230 million and 260 million by the end of 2024. While that subscriber goal would be impressive, if achieved, it will require significant investments, which may impact profits. The market wants to know if these targets are still attainable and investors will want additional details about the company’s long-term growth strategy.
For the three months that ended December, Wall Street expects the Burbank, Calif.-based company to earn 79 cents per share on revenue of $23.36 billion. This compares to the year-ago quarter when earnings came to $1.06 per share on revenue of $21.82 billion. For the full year, ending October, earnings are projected to rise 16.7% year over year to $4.12 per share, while full year revenue of $90.57 billion would rise 8.10% year over year.
Meanwhile, revenue growth estimates for quarter has also trended higher over the past three months, suggesting increased optimism not only about the company’s business recovery prospects within its two main business operating segments: Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products. When the company last reported its results, Q4 revenues and EPS missed Street expectations.
Q4 revenues grew 9% year over year to $20.15 billion, below expectations for growth of nearly 16%. On the bottom line, adjusted Q4 EPS of 30 cents misses by 26 cents. Total segment operating income was also short of expectations, coming in at $1.6 billion, rising just 1% year over year, missing estimates of $2.05 billion. Net income rose by 1% as well, to $162 million. In other segments, Disney Media and Entertainment Distribution revenue reached $12.73 billion, while Disney Parks, Experiences and Products $7.43 billion.
However, the company delivered better-than-expected subscriber growth with the direct-to-consumer business as total subscribers reached 235 million. During the quarter, the company added 12.1 million Disney+ subscribers, topping Street expectations for 9.3 million net additions. In all it added 14.6 million total subscriptions. The company also touted the start of its advertising-supported tier on Disney+, borrowing a strategy from Netflix. Then-CEO Bob Chapek commented that it is a “key component to our total property advertising portfolio, and advertiser interest has been strong.” Chapek has since been ousted and former CEO Bob Iger has returned to the company.
The company also promised to trim the operating losses incurred within the DTC business. While citing upcoming price increases, along its ad-supported service tier to Disney+, the management said that “Disney+ will still achieve profitability in fiscal 2024.” Assuming these initiatives are still on track, Disney on Wednesday is poised for a top and bottom line beat, which can sustain the recent strong rally in the stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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