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  • Earnings
  • disruptive innovation

Disney set to dazzle with fourth-quarter growth

Entertainment giant Disney [DIS] is forecast to dazzle with a 320% surge in earnings growth year on year and 28% revenue growth when it reports its fourth-quarter earnings on 10 November.

The group has been boosted by the re-opening of its theme parks as well as cinemas as COVID-19 vaccination rates rise and economies re-open.

It has also benefited from an increase in subscriber numbers for its TV streaming services Disney+, ESPN+ and Hulu.

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead,” said Benjamin Swinburne, equity analyst at Morgan Stanley. “During this period of free cash flow pressure from Parks closures, ESPN’s free cash flow generation is key to driving down leverage..”

Over the last 12 months, the Walt Disney share price has climbed 38%, compared with rivals such as Netflix [NFLX], whose shares have climbed 34% to the end of October.

 

 

 

Look for EPS growth

In the third quarter, Walt Disney reported earnings per share of 80 cents, which exceeded analysts’ forecasts of 55 cents. Its revenues came in at $17.02bn, compared with forecasts of $16.76bn.

Disney+ subscriber numbers of 116 million beat forecasts of 114.5 million.

Analysts at Zacks expect Disney to report fourth-quarter earnings of $0.51 per share, which would mark a 375% year-on-year leap from a loss of -$0.20 this time last year, when many economies and societies were locked down because of COVID-19. It is expected to report revenues of $18.8bn, up 28%.

375%

Disney's earnings-per-share increase year-on-year

 

 

It’s all about the shows

Whether this will be enough to give its share price a boost is debatable. The Disney share price dropped off from around $200 in early March as the pandemic started to fade to $169 in May.

It has largely remained flat since then, closing at $175.63 on 5 November.

That’s mostly down to fears over the COVID-19 Delta variant making visitors potentially think twice about visiting its theme parks, but also continued concerns about slowing subscriber demand for Disney+.

In the December 2020 quarter and first quarter of 2021 it added around 21 million Disney+ subscribers but additions fell to 9 million by the June quarter. They did pick up to 13 million subscribers added in the subsequent quarter.

There have also been concerns around a lack of exciting new programming on its channels compared with rivals such as Netflix, with its huge Squid Game hit.

However, Morgan Stanley’s Swinburne remains bullish. “Despite significant continued upward earnings revisions, shares have lagged as net adds expectations ran ahead of content deliveries. As the content pipeline builds into ’22 and ’23, core net adds should accelerate, driving shares.”

Indeed, Disney+ expects to have 250 million subscribers by 2024. That’s impressive, given that it took Netflix a decade to hit 200 million.

Lawrence Rothman, writing in the Motley Fool, is more measured, hailing the breadth of Disney’s business. “While it may not have the supersonic growth of the past, Disney+ is still adding subscribers at a nice pace. What's more, Disney is far more than a streaming service. Its vast media empire includes parks, movies, several television networks, and retail stores. This helps the company produce strong results, even if one part of the business slows.”

“Disney is far more than a streaming service. Its vast media empire includes parks, movies, several television networks, and retail stores” - Motley Fool's Lawrence Rothman

 

 

Seeking subscribers

The main catalyst for share price growth will come with Disney+ subscriber numbers. A leap on the third-quarter performance will re-fire investors’ hopes that it can increasingly take on rivals such as Netflix.

Any updates on programming, both on TV and hybrid releases in the cinema, will also be of interest.

According to MarketScreener, analysts have a consensus Buy rating and a $208.26 target price for the stock.

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