Disney’s Results For Q3 Fiscal 2014 Likely Bolstered by ESPN And ABC

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

Disney (NYSE:DIS) will report its Q3 earnings for fiscal 2014 on August 5. (Fiscal years end with September.) We expect Disney to report higher earnings driven by strong growth across its segments. We will likely see that the studio business benefited from the success of both Captain America: The Winter Soldier and Maleficent at the box-office. The movies are comparable to Iron Man 3, which was a big hit for Disney in the prior year quarter.

The sports giant ESPN witnessed a drop in advertising revenue amid lower ratings in the previous quarter. However, ESPN and Disney’s broadcasting network, ABC, surely reaped the benefits from record viewership of FIFA world cup in this quarter.

Earlier this year, Disney raised its theme parks ticket prices, which boosted per capita spending 4% higher in the previous quarter. We expect to learn that the theme parks business continued to grow in Q2 due to the inclusion of Easter holidays, which fell in Q1 in the prior year.

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?

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

ESPN And ABC Benefited From The FIFA World Cup Telecast

We estimate that ESPN networks contribute roughly 40% to Disney’s value. The sports giant derives its value from the high fees that it charges for its sports programming from close to 100 million subscribers in the U.S. The network charged an estimated subscription fee of $5.54 in 2013 and we estimate it to be around $5.82 for 2014.

Disney’s media networks saw steady growth in the previous quarter with revenue growth of 4% and a 15% jump in operating income driven by higher affiliate fees. [1] However, the advertisement revenue at ESPN declined by low single-digits due to a decrease in units sold and lower ratings. We expect that advertising revenue grew strongly in the June quarter and into this quarter, driven by record viewership of the FIFA World Cup. ESPN and ABC witnessed 42% jump in total viewership for the first 60 matches as compared to previous world cup in 2010. [2] The viewership was highest for the match between U.S. and Portugal (18.22 million viewers) on June 22. [3] Accordingly, we believe that record ratings and viewership drove the advertising growth for both ESPN as well as the ABC broadcasting network. In sum, we estimate ESPN channels and ABC’s ad revenues will grow to $3.5 billion and $3.25 billion respectively in 2014.

Studio Business To Benefit From Box Office Hits

Disney’s Studio Entertainment saw a fantastic March quarter with grossing of over $520 million during the period, reflecting continued benefits from the success of Frozen, which is the highest-grossing animation movie ever made. [1] Moreover, there has been a huge demand for Frozen merchandise across the globe. Frozen merchandise sold better than any other licensed toy in the first quarter of 2014, reflecting huge demand for the merchandise. Disney Stores are unable to meet the demand for the merchandise and has restricted customers to buy a maximum of two items per order. This is great news for Disney Consumer Products, which will continue to benefit from the high merchandise demand in this quarter.

In the June quarter, the studio released 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 $713 million at the box-office globally. [4]  Another release was Angelina Jolie’s Maleficent, which was again made with a production budget of $180 million and has so far grossed over $700 million at the global box-office. [5] While the studio will reap benefits of these two movies as well as last year release of Frozen, it will be compared with Iron Man 3 from the prior year quarter, which was a global hit with grossings of over $1.2 billion. We estimate 2014 studio entertainment revenues of close to $6.6 billion for 2014, reflecting growth of close to 5% over 2013.

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

Notes:
  1. Disney’s SEC Filings [] []
  2. Another World Cup Surprise: TV Ratings, Bloomberg Businessweek, July 10, 2014 []
  3. World Cup 2014 Delivers ESPN & Univision’s Best Soccer Ratings Ever, Deadline, July 14, 2014 []
  4. Captain America: The Winter Soldier, Box Office Mojo, As of July 31, 2014 []
  5. Maleficent, Box Office Mojo, As of August 3, 2014 []