Disney Misses Q3 Estimates as Media Division Struggle

Disney Misses Q3 Estimates as Media Division Struggle

 
The diversified media and entertainment company Walt Disney Company (NYSE: DIS) reported fiscal 2017 fourth-quarter results that missed analysts’ estimates. Barring the Parks and Resorts segment, all other business divisions failed to meet estimates. More importantly, once again, ESPN, which has been the major income generation division of the company, performed poorly. Still, the stock rallied to reach a level of about $106, after the company announced that it will offer on-demand streaming services to subscribers at a cost lower than Netflix. However, considering the weak performance discussed below, we anticipate the stock to begin its downtrend soon.

The Burbank, California-based Disney’s 4Q17 revenues were $12.78 billion, down 3% from $13.14 billion in the corresponding quarter last year. The Wall Street analysts had expected Disney to post revenues of $13.34 billion.

For the final quarter of fiscal 2017, the company reported a 1% decline in profit to $1.75 billion, from $1.77 billion in the year-ago period. The earnings per share, however, increased to $1.13 in Q4 2017, from $1.10 per share in 4Q16, mainly due to a lower number of outstanding shares.

Excluding special items, earnings for the quarter ended September 2017 was $1.07 per share. The Consensus estimate of Thomson Reuters was $1.15 per share.

Segment wise,

  • Media Networks revenue – $5.465 bln Vs. $5.658 bln last year
  • Operating income – $1.475 bln Vs. $1.672 bln.
  • Analysts estimate – $1.58 bln.
  • Cable Networks revenue (includes ESPN) – $3.951 bln Vs. $3.956 bln.
  • Operating income – $1.236 bln. Vs. $1.251 bln.
  • Broadcasting revenue – $1.514 bln Vs. $1.702 bln.
  • Operating income – $229 mln Vs. $271 mln.
  • Parks and Resorts revenue – $4.70 bln, up 6% y-o-y.
  • Operating income – $746 mln, an increase of 7% from last year.
  • Analysts estimate – $735.1 mln.
  • Studio Entertainment revenue – $1.4 bln, down 21% y-o-y.
  • Operating income – $218 mln, down $163 mln from the year-ago period.
  • Analysts estimate – $364.4 mln.
  • Consumer Products & Interactive Media revenue – $1.20 bln, down 6%
  • Operating income – $373 million, down 12% y-o-y.
  • Analysts estimate – $470.4 mln.

According to Nielsen data, only 87 million homes now have access to ESPN channel in the US, down from 100 million a few years ago. Robert Iger, Chairman and CEO, is still bullish about the prospects of ESPN. Iger argues that the brand and programming quality is strong enough to ensure growth in the future.

Walt Disney is planning to launch its own ESPN brand video streaming service in early 2018. The channel will feature about 10,000 sporting events per year and will have content from MLS, NHL, LB, and tennis Grand Slam events. In this regard, beginning 2018, Disney will end its distribution agreement with Netflix. From the beginning of 2019, Disney will also stop streaming its movies on Netflix and offer new releases through its own streaming service.

Thus, considering the transition the company is going through, and poor performance of its business segments, we anticipate the stock to remain bearish in the short-term.

The price chart indicates a resistance for the stock at 106. The oscillator of moving average is below the zero level. That reflects the underlying weakness in the stock. On the down side, the next major support exists at 99.

Walt Disney - Technical Analysis - 28th November 2017

In order to benefit from the analysis, we are planning to invest our surplus funds in a put option offered by a binary broker listed here. We will set up the trade when the stock of Walt Disney changes hands at about $103. A date around December 6 will be chosen for the contract’s expiry.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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