Down 30% year-to-date and almost 41% over the past year, shareholders could use some good news from the entertainment conglomerate. Unfortunately, the tea leaves suggest its results will be a mixed bag.
If you’re thinking of buying Disney stock to benefit from an earnings bump, there’s one reason it could happen and another why it probably won’t.
In Normal Times, DIS Stock Would Jump on News
Disney operates two business segments: Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP).
The former include ABC Television, ESPN, 50% of A+E Television Networks, ESPN, Disney’s movie studios including Twentieth Century Studios, Marvel, Pixar, and Lucasfilm, and of course, its direct-to-consumer (DTC) streaming business including Disney+ and ESPN+. In Q1 2022, its DMED segment accounted for 67% of its $21.8 billion in overall revenue.
The latter includes the company’s theme parks and resorts such as Disney World in Florida, Disneyland Resort in California, Disneyland Paris, 48% of Hong Kong Disneyland Resort, and 43% of Shanghai Disney Resort, Disney Cruise Line, the licensing of its trade names, and the Disney retail, online and wholesale businesses. In Q1 2022, it accounted for 33% of sales.
DPEP continues to return to pre-pandemic numbers. It generated an operating profit of $2.45 billion from $7.23 billion in revenue in the first quarter$2.45 billion from $7.23 billion in revenue. In Q1 2019, DPEP had an operating income of $2.34 billion from $7.40 billion in sales.
The Netflix Effect
After Netflix (NASDAQ:NFLX) reported it lost 200,000 subscribers in Q1 2022 and expected to lose two million more in the second quarter, investors have been skeptical about all streaming services, including Disney+.
Disney’s long-term goal is at least 230 million worldwide by September 2024. The current projection for new Disney+ subscribers in Q3 2022 is 11 million.
Investors will be paying attention to management’s comments about its DTC business. If they’re positive, the damage should be minimal. However, if investors get a hint that the long-term goal is in jeopardy, that’s an entirely different ball game.
I would not buy DIS stock before earnings.
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