Media and Entertainment behemoth Walt Disney Co. (NYSE: DIS) reported a 78% increase in profit for the fiscal 2018 first quarter, compared to the similar period of fiscal 2017. The surge in profit was due to huge tax gains and a 13% growth in Park & Resorts revenues. While the quarterly earnings surpassed analysts’ estimates, revenues fell short of expectations. The company also announced an impressive project pipeline for 2018. Still, we anticipate a short-term decline in the stock price due to the reasons presented below.
Burbank, California-based Disney’s total revenue in the first quarter was $15.35 billion, up 4% from $14.78 billion in the corresponding period last year. The Thomson Reuters consensus estimate was $15.45 billion for the recent quarter.
For 1Q18, Disney posted a net profit of $4.423 billion, or $2.91 a share, compared with $2.479 billion, or $1.55 a share, in 1Q17. The company gained $728 million from the new income tax regulation. Overall, Disney’s other benefits totaled $1.60 billion.
Excluding special items, the company reported earnings of $1.89 per share in the quarter ended December 31, compared with $1.55 per share during the same quarter last year. The Wall Street analysts had expected earnings of $1.61 per share for 1Q18.
Segment-wise:
- Media networks Q1 revenue was flat at $6.24 billion. Analysts had expected revenues of $6.35 billion.
- Theme Parks & Resorts revenue grew 13% to $5.15 billion and surpassed the StreetAccount Consensus estimate of $4.86 billion.
- Studio entertainment revenues declined 1% to $2.504 billion and missed the Wall Street estimates of $2.75 billion.
- Consumer products and interactive media slipped 2% to $1.45 billion and missed the Street estimates of $1.52 billion.
During the quarter, Disney’s movie studio produced three blockbusters: Star Wars: The Last Jedi, Thor Ragnarok, and Coco. Still, operating income for the Studio segment fell because of lower home entertainment and streaking sales.
Disney also announced that it will be expanding its Star Wars universe. In this regard, the company is hiring David Benioff and Weiss, the creators of HBO hit Game of Thrones.
Over the next few years, Disney is planning to transform itself from being a traditional media company to a digital entertainment leader and reach audiences who prefer to watch TV shows and movies online through monthly subscriptions.
In December, Disney acquired Twenty-First Century Fox for $66.10 billion, including debt. Following the acquisition, the boards of both companies asked longtime CEO Bob Iger to continue to lead the transformation through the end of 2021. James Murdoch, CEO of Fox, will also help with the transition.
The continuing loss of ESPN subscribers resulted in a 12% decline in the Media Networks’ net income to $1.193 billion. To counter the decline, Disney is planning to launch a streaming service for sports fans later this year. The sports streaming service is named ESPN Plus and will be made available at a cost of $4.99 per month. Additionally, a family entertainment offering is also planned for 2019. However, as of now, the stock remains weak due to the poor performance of three divisions, which missed analysts’ estimates. The weakness is also amplified by a y-o-y decline in the overall revenue.
The price chart indicates strong resistance for the stock at 108.40. Furthermore, the stochastic indicator is in the bearish zone. Therefore, we are expecting a decline in the share price.
To gain from the probable decline in the stock price of Disney, we may purchase a put option offered by a reliable binary broker. The option should remain valid for a period of seven trading days. Additionally, Disney should be trading near $105 for us to proceed with the investment in a put option.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
