Will The World Cup, Frozen Send Disney Profits Soaring?
Estimize | Aug 05, 2014 02:02AM ET
Disney is the place where dreams come true. On Tuesday, The Walt Disney Company (NYSE:DIS) is expected to report accelerating earnings driven by the success of the Frozen animated film and the company’s Media Networks division, despite plummeting television viewership numbers across the board.
Given the tremendous success of Netflix Inc (NASDAQ:NFLX) and other multi-device video content services, it’s not surprising the television viewership metrics are falling. Consumers are instead using on-demand services to get the shows that they want, when they want them. Wells Fargo analyst Marci Ryvicker recently pointed out in a research note that viewership in the Time Warner, NBCUniversal, and 21st Century Fox divisions of Comcast (NASDAQ:CMCSA) reported double digit year over year declines.
Disney’s flagship sports network, ESPN, should come out unscathed this quarter. Record ratings from the World Cup are expected to buoy Disney’s Media Networks revenue. World Cup viewership was up 39% from 2010, although Disney’s quarterly earnings report will not reflect advertising revenue from the final 3 rounds of the tournament which occurred in July.
This quarter contributing analysts on Estimize.com are forecasting that Disney will report earnings per share of $1.22 and $12.308 billion in revenue. This quarter the delta between Wall Street and Estimize is significantly higher than usual, with the sell side only looking for $1.17 EPS and $12.162 billion in sales. A large differential between Estimize consensus and Wall Street consensus signals a difference in expectations between the buy side and the sell side. This quarter investors are expecting Disney to crush the Street’s numbers, which may help to explain the run up in the price of Disney shares.
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In addition to a boost from the World Cup, movie studio magic is also expected to propel Disney higher. Disney has made several high profile bets on movie studios in recent years, and they are starting to pay off. Making movies can be an expensive and risky business, but Disney has produced several blockbuster hits over the past year. Most notably Frozen accumulated over $1.2 billion at the box office worldwide.
A couple years ago Disney acquired Lucas Films (the rights to the Star Wars franchise) for $4 billion. Star Wars will be Disney’s next big bet, joining its portfolio of popular movie studios including Marvel and Pixar. Disney’s latest Marvel film, The Guardians of the Galaxy, took in $94 million at the box office during its opening weekend while only about $65 million was projected. The Guardians of the Galaxy was released on August 1st meaning it will not be included in Tuesday’s report, however, continued success at the box office and an exciting movie pipeline offer compelling reasons to be optimistic about Disney’s near future profitability. This year Disney also added Maker Studios to its content network for $500 million, bolstering the company’s short form online video presence on Youtube.
Finally, it’s impossible to discuss Disney without talking about its Parks & Resorts unit. Disney has recently rolled out the MagicBand wristband for guests. Guests can use their wristband for park admittance, as a hotel key, to make purchases, and more. With guests wearing electronic wristbands Disney will gain access to a powerful asset as the company learns about how guests interact with its parks via big data. Learning about guests’ spending habits in aggregate could be a major catalyst to improve the monetization of Disney’s parks.
Over the previous 2 quarters Disney has stepped on the earnings accelerator, in large part due to the global phenomenon that is Frozen. Contributing buy side and independent analysts on Estimzie are predicting that on Tuesday Disney will post year over year EPS growth of 58% and a 6% increase in yoy sales. On Tuesday we will see if Frozen can be the smash hit gift that keeps on giving which we all expect it to be.
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