Key Takeaways From Disney’s Q1

+1.33%
Upside
122
Market
124
Trefis
DIS: Walt Disney logo
DIS
Walt Disney

Disney (NYSE:DIS) reported relatively mixed fiscal first quarter earnings on Tuesday, February 6, as it beat profit expectations easily but missed on revenues. The company’s revenue grew 4% year-over-year (y-o-y) to $15.3 billion, primarily due to a strong performance in Parks and Resorts segment, partially offset by fairly flat results in other segments. The company posted diluted GAAP earnings of $2.91 per share, up a strong 88% y-o-y, largely driven by the lower federal tax rate in fiscal 2018. Excluding this benefit, the earnings rose 22% y-o-y to $1.89.

We have created an Interactive Dashboard which outlines our forecasts for the company and our expectations for its Q2 earnings. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

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?

Media Networks Remained Flat In Q1

Disney’s Media Networks revenue for the quarter remained flat at $6.2 billion, while its segment operating income decreased 12% y-o-y to $1.2 billion, primarily due to lower broadcasting results and lower equity income. The flat Media Networks results were driven by growth in affiliate revenue, offset by a decrease in advertising revenues.

Disney was largely impacted by lower advertising revenues at ESPN, which more than offset growth in its affiliate revenues and lower programming expenses. ESPN’s advertising revenue declined 11% y-o-y in the first quarter, as higher rates were more than offset by a decrease in impressions. To add to that, ESPN’s cash ad sales paced down, reflecting the timing benefit of two semifinal bowl games. However, ESPN’s viewership grew 13% y-o-y in the evening time period across both TV and streaming in this quarter. The network also claimed the most-watched cable network title in the December quarter.

Parks And Resorts – Strong Growth Driver

Disney’s Theme Parks revenue grew 13% y-o-y and operating income increased 21% y-o-y, driven by growth in both its domestic and international businesses. In Q1, the segment benefited from higher results at domestic parks and growth at Disney Cruise Line and Disney Vacation Club. Moreover, higher costs and growth in occupied room nights, along with growth in guest spending and attendance, improved the company’s domestic operations. The segment also benefited from the operations of Shanghai Disney Resort and improved results at Disneyland Paris. We expect Disney’s theme parks to be an important driver for its long-term growth due to its international expansion.

Relatively Weak Performance Of Studio Division

Disney’s Studio Entertainment revenues decreased 1% y-o-y to $2.5 billion and the segment’s operating income further fell 2% y-o-y to $829 million, as growth in theatrical distribution was offset by lower home entertainment and television distribution revenues. The segment’s theatrical business had a solid quarter due to the strong performances of Star Wars: The Last Jedi, Thor: Ragnarok, and Coco, and these three films collectively generated over $4.4 billion in the global box office.

Future Outlook

On the Q1 earnings call, Disney announced that ESPN’s upcoming streaming service ESPN+ will cost $4.99/month. This service is expected to come with a fully redesigned app, and as planned will feature sports events not available on linear ESPN channels. In addition, the app will offer scores and highlights, along with streaming of channels for cable subscribers with the ability to subscribe to live events. On the proposed transaction to acquire the media assets of Twenty-First Century Fox, the company will file an S-4 that will include a joint proxy of Disney and Fox.

Our $111 price estimate for Disney’ stock is slightly ahead of the current market price.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology