Disney Will Continue To Reap Benefits From Frozen In Fiscal Q2

+8.98%
Upside
114
Market
124
Trefis
DIS: Walt Disney logo
DIS
Walt Disney

Disney (NYSE:DIS) will report its Q2 earnings for fiscal 2014 on May 6. We expect Disney to report higher earnings driven by its movie business. Disney will see continued benefits from Frozen, released late last year. Frozen is now the world’s highest grossing animated film of all time.

The sports giant ESPN benefited from higher affiliate and advertising revenue in the previous quarter. However, the company stated that ESPN will generate approximately $75 million less in affiliate revenue in March quarter as compared to the prior year period. [1]

On gaming front, Disney Interactive and Marvel Entertainment recently confirmed that the Marvel’s iconic super heroes are assembling for second edition of Disney Infinity. [2] It must be noted that Disney’s Infinity has been very popular since its launch in August last year. It was the best-selling new hybrid toy/video game of 2013, according to the NPD Group’s video games retail sales data. [2]

Relevant Articles
  1. Disney Stock Has 2x Upside If It Rises To Pre-Inflation Shock Highs Of $202 Per Share
  2. Disney Stock Could Rise Over 2x If It Recovers To Pre-Inflation Shock Highs
  3. Will Slowing Streaming Growth Impact Disney’s Q3 Results?
  4. Disney Stock Could More Than Double If It Recovers To Pre-Inflation Shock Highs
  5. A Deep Dive Into Disney’s Streaming Operations After A Tough Q2
  6. What To Expect As Disney Reports Q2 Results?

Earlier this year, Disney raised its theme parks ticket prices, which boosted per capita spending 8% higher in the previous quarter. [3] While we expect continued growth in this segment, theme parks will perform much better in the next quarter due to the Easter holidays.

Disney will acquire Maker Studios, a YouTube video channel, for $500 million in cash and $450 million in performance-based bonuses.  Recently we have learned that the federal government has no antitrust issues with the proposed deal. [4] We want to know more on Disney’s vision for Maker Studios.

Understand How a Company’s Products Impact its Stock Price at Trefis

Media Networks Will Continue To Grow

Media networks account for more than 40% of Disney’s revenues and operating income. ESPN alone contributes more than 30% to Disney’s value, according to our estimates. In the previous quarter, media networks benefited from higher affiliate fees. However, the company’s management stated that the growth in previous quarter reflected the last quarter in which year-over-year comparisons were aided by the new affiliate deals that took effect in the second fiscal quarter of 2013. [1]

ESPN derives its revenues primarily from two sources, subscription and advertisement. Subscription revenues have grown from $3.70 billion in 2007 to $6.55 billion in 2013, according to our estimates. This is a result of high monthly subscription fee, which grew from $3.26 in 2007 to an estimated $5.54 in 2013. Subscription accounts for more than 55% of ESPN’s revenues, according to our estimates. ESPN continues to enjoy telecast rights for major sports events in the U.S., which will help the sports giant to continue to grow its monthly subscriber fees. This year, ESPN’s advertising will benefit from the telecast of the very popular tournament, FIFA World Cup.

Disney Will See Continued Benefits From Frozen

Disney Studios contribute close to 9% to the company’s value, according to our estimates. Disney saw a fantastic March quarter and topped the U.S. box-office (16.4% market share) with grossing of over $520 million during the period. The studio likely benefited from the continued success of Frozen, which is now the highest-grossing animation movie ever made. The movie cost a modest $150 million to produce and has grossed more than $1.17 billion at the global box-office. [5] Frozen related merchandise is also a hit for Disney’s retail business. Disney Stores are unable to meet the demand for Frozen merchandise and has restricted customers to buy a maximum of two items per order. Frozen merchandise sold better than any other licensed toy in the first quarter of 2014. [6] Stores across the U.S. are sold out on Frozen costumes, and originals are being offered for as much as $1,600 on EBay. [7] It is clear that there is a huge demand for the merchandise and Disney Consumer Products would have benefited from the same in the first quarter.

The big release for Disney was Marvel’s Captain America: The Winter Soldier, which did well at the box-office. The movie was made with a production budget of $170 million and has so far grossed close to $680 million at the box-office globally. [8] Disney will benefit from Captain America: The Winter Soldier in the next quarter. It must be noted that the prior year quarter was also good for Disney Studios, which benefited from lower film cost write-downs and higher worldwide theatrical results from the performance of Oz The Great And Powerful. [3] We believe studio entertainment will see continued growth at Disney in the March quarter.

See More at TrefisView Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

Notes:
  1. The Walt Disney Company’s CEO Discusses F1Q 2014 Results – Earnings Call Transcript, Seeking Alpha, Feb 5, 2014 [] []
  2. MARVEL SUPER HEROES JOIN DISNEY INFINITY, Marvel Press Release, Apr 30, 2014 [] []
  3. Disney’s SEC Filings [] []
  4. Feds OK with Disney/Maker Studios Deal, Broadcasting & Cable, May 2, 2014 []
  5. Frozen, Box Office Mojo, As of May 4, 2014 []
  6. America’s ‘Frozen’ Obsession Continues, Leading to Disney Store Lotteries and Disneyland Craziness, The Wrap, May 2, 2014 []
  7. Disney’s ‘Frozen’ Dress Sets Off $1,600 Frenzy by Parents, Bloomberg, Apr 10, 2014 []
  8. Captain America: The Winter Soldier, Box Office Mojo, As of May 4, 2014 []