Disney’s Q2 Earnings Expected To Show Core Business Strength
Investing.com | May 08, 2019 01:52AM ET
* Reports Wednesday, May 8, after the close
* Revenue Expectation: $14.48B, EPS: $1.57
Walt Disney Co. (NYSE:DIS) shareholders have many reasons to be cheerful these days. Not only is the company’s existing business showing signs of strength, but the global entertainment giant is also building a war chest, arming itself to take on rivals in the video-streaming market.
In this environment of hope and growth, Disney releases Q2 2019 earnings later today that investors expect will provide more fodder for the bulls. In the short-term, Disney has great earnings momentum after its “Avengers: Endgame” release received a record-breaking reception globally.
The movie took in $1.22 billion in its debut in the last week of April, collecting $357.1 million in the U.S. and Canada alone. The Marvel machine has been a great success for Disney. Last year’s “Infinity War,” made an estimated $985 million in profit, including TV, toys and theater ticket sales, according to S&P Global.
h2 Not Much Risk to Disney Stock/h2The performance of the Endgame was so powerful that it forced many top Wall Street banks to upgrade Disney’s stock and their 2019 earnings estimates. This optimism bodes well for Disney shares, which after hitting a record high in April, have delivered 24% return this year, far outpacing S&P 500 gains. The shares slipped 1.2% yesterday, to close at $133.44, but have still gained 16% in the past month alone.
With Disney’s underlying businesses showing growth, and its November launch of its Disney+ streaming service well on track, we see little risk to its shares even after their powerful rally so far this year. We believe the company will continue to benefit from its diversified franchise, which is continuing to provide a good cash-flow stream even as the House of Mouse is undertaking a massive shift in its business strategy.
Disney had earlier warned that fiscal 2019 would be a tough year as the company goes through an internal transition after acquiring most of 21st Century Fox, even as it develops programs for its flagship Disney+ service to win back subscribers who decamped to streaming providers such as Netflix (NASDAQ:NFLX).
Disney announced last month that Disney+ will launch in the U.S. on Nov. 12, for $6.99 a month—half the price of Netflix, which currently dominates the streaming market. It will offer programming from Disney’s biggest franchises, such as Star Wars and Marvel Studios, in addition to new, original programming.
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But that launch will not bring an immediate boost to the bottom-line for Disney. Instead, these initiatives will escalate costs and crimp profit in the first few years. The service is likely to have between 60 million and 90 million subscribers by the end of fiscal 2024, the year in which the company expects to achieve profitability on this segment.
Bottom Line
Disney shares, trading close to their record high, are reflecting all these positive expectations and holding up well in a market which is vulnerable to a correction after substantial gains in 2019 and amid mounting macro risks from the U.S.-China trade war escalation. In this environment, we don’t expect a major move in Disney shares when the company releases its Q2 earnings. But any potential weakness due to a negative earnings surprise should provide an entry point to long-term investors still waiting on the sidelines.
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