Disney Reports Earnings Tomorrow. Here’s What to Expect. - Barron's

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Walt Disney investors will get new details about the performance of Disney+ on Tuesday evening. The entertainment giant’s only disclosure about its new streaming service so far came the week it launched in November 2019, saying that it had signed up 10 million subscribers in its first day.

Management has been mum on the subject since, but Disney is set to report its fiscal first-quarter 2020 earnings on Tuesday after the market closes. Disney+, Hulu, and ESPN+ will be a focus for investors, who bid up the company’s stock in 2019 on its streaming strategy.

The performance of Disney’s core movie, TV, and theme park businesses last quarter will be closely watched, as will its progress on incorporating newly acquired 21st Century Fox assets. Investors will also want to hear about the potential impact of the new coronavirus on Disney’s Asian properties.

Disney stock (ticker: DIS) had returned 26% including dividends over the past year through Friday’s close. That is just ahead of the S&P 500’s 24% return, and better than the Dow Jones Industrial Average’s 18% return. It’s also well ahead of the stocks of Disney’s media competitors. Discovery (DISCA) shares had returned 3% in 12 months through Friday, while ViacomCBS (VIAC) and AMC Networks (AMCX) had lost 30% and 41%, respectively.

Here’s a snapshot of Wall Street’s expectations and some recent history.

• 2019 was a year of transition for Disney, which is reinventing itself around a direct-to-consumer strategy. But the nearly 100-year-old media and entertainment giant’s traditional businesses are still highly relevant. It’s become utterly dominant at the box office in recent years with hit after tentpole hit from its Marvel, Star Wars, and namesake franchises. Its theme parks have also seen a renaissance, as Disney opened new worlds and raised prices. Disney’s TV networks, however—which include ABC and ESPN—have faced an exodus of viewers as consumers cut the cord en masse in favor of streaming services from the likes of Netflix (NFLX) and Amazon.com’ s (AMZN) Prime Video.

• In response to that pressure, Disney made a $81.2 billion move to buy the majority of then-21st Century Fox’s (FOXA) entertainment assets. That deal, which closed in late March, paired Fox’s TV networks and film studios, including National Geographic and FX, with Disney’s ABC, ESPN, Pixar, Marvel, Star Wars, and other media properties. It also gave the House of Mouse a majority stake in Hulu, the streaming service. (Fox and Barron’s parent company, News Corp (NWSA), share common ownership.)

• Amassing all that content is meant to give Disney the resources to build out its own direct-to-consumer streaming offering and take on Netflix at its own game. At an investor day in April, Disney set ambitious targets for subscriber growth, the content on its services, and expected time to profitability. The three-pronged strategy includes Disney+ for family and children’s programming, ESPN+ for sports, and Hulu, which Disney describes as targeting adult viewers.

• Disney+ launched in the U.S. on Nov. 12, 2019, and Disney proudly revealed that it had received 10 million sign ups for the service in just the first day, more than some analysts had been expecting the service to register by the end of the year. The stock jumped more than 7% that day.

• Streaming investments and the integration of the former Fox assets have weighed on Disney’s bottom line in recent quarters. The company’s fiscal fourth-quarter earnings, reported on Nov. 7, 2019, fell 28% from a year earlier. That was despite a 34% rise in revenues reflecting the incorporation of 21st Century Fox. Still, results were better than expected: adjusted earnings were $1.07 per share, while analysts had forecast 95 cents. Sales came in at $19 billion, about equal to what Wall Street had been expecting. Disney shares rose 3.8% the following day.

• For its most recent quarter, the first of its fiscal 2020, Disney is expected to report $1.47 in adjusted earnings per share, down from $1.84 in the same period in fiscal 2019. Revenue is estimated to come in at $20.8 billion, versus $15.3 billion a year earlier. Analysts forecast $4.6 billion in adjusted earnings before interest, taxes, depreciation, and amortization, which would be up from $4.2 billion last year.

• Wall Street analysts are bullish on the stock: Seventy-four percent have a Buy or equivalent rating, while 26% recommend a Hold. No analysts rate Disney at Sell. Their average target price is $158.33, over 14% above its recent $138.31. Disney stock pays a 1.3% annual dividend yield.

Disney management will host a conference call with analysts on Tuesday at 4:30 p.m. ET.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

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