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Disney Q4 Earnings Preview: 3 Things to Watch

All eyes will be on ESPN when Mouse House reports earnings Thursday

Disney reports fourth-quarter earnings Thursday, after a year in which its movie studio could seemingly do no wrong, cranking out hit after hit and crossing $6 billion worldwide. But that might not matter much to Wall Street if Disney’s ESPN sports network continues to bleed subscribers.

Analysts are expecting the company to report revenue of $13.52 billion and earnings of $1.16 a share on average. Disney beat expectations last quarter, but it failed to do so for the first time in five years when it reported second-quarter earnings in May. And another miss would likely further hit the company’s stock, which is down more than 10 percent year-to-date.

Aside from the headline numbers, here are three things analysts, investors and stockholders will likely focus on:

1. ESPN Blues
In October, Nielsen released numbers showing that ESPN had its largest one-month subscriber loss ever, shedding 621,000 cable subscribers who each pay about $7 a month for ESPN. The sports network quickly pushed back, arguing that Nielsen’s numbers were an anomaly and did not adequately capture those watching on internet streaming services, such as Sony’s PlayStation Vue. Nielsen, however, confirmed its initial calculation. ESPN currently has less than 89 million subscribers, down from 101 million in 2011.

And ESPN, which will spend $7.3 billion on rights fees in 2017, needs to show investors some good news because the whole enterprise is counting on it. Disney’s cable networks division — of which ESPN is the dominant entity — accounted for 29 percent of its revenue and 47 percent of its profits last quarter, but increased its revenue by just 2 percent year-over-year, while its profits actually declined slightly. Those struggles are the main reason Disney’s stock is down 18 percent over the past 52 weeks even as its movie studio and theme park divisions are thriving.

Disney paid $1 billion for a minority stake in streaming video company BAMTech in August, and has plans to launch a multi-sport streaming service not tied to a cable subscription. Investors and analysts will be on the lookout for any other streaming ESPN news – or other ways to stop the bleeding.

2. Shanghai Disneyland
On June 16, Disney CEO Bob Iger cut the ribbon at Shanghai Disneyland Park, the first phase of Disney’s long-planned China theme park complex. But not everyone welcomed the Magic Kingdom to the Middle Kingdom.

Dalian Wanda Group CEO Wang Jianlin, China’s richest man, blasted the decision to open in China, threatening to make Shanghai Disneyland Park unprofitable within two decades on a Chinese talk show. Wang’s Wanda Group has been buying Hollywood assets by the billion and is building its own network of theme parks in China.

Investors will want to see just how much the big crowds filmed checking out Shanghai Disneyland Park added to its theme park division’s bottom line, which had been thriving already. Last quarter, Disney reported an 8 percent growth in theme park profits over the same period last year.

3. Box Office Gold
Boosted by the success of its latest Marvel movie, “Doctor Strange,” Disney recently became the second studio to hit $6 billion in worldwide box office receipts in a single year. And with expected blockbusters including “Moana” and “Rogue One” still on the calendar for 2016, the Mouse House looks likely to break Universal’s all-time record for market share.

The studio’s third quarter was loaded with some of the year’s biggest hits, such as “Captain America: Civil War” and “Finding Dory,” and that translated on its financials — its studio entertainment division had a whopping 62 percent increase in profits year-over-year last quarter. But with the fall box office overall down from last year, analysts and investors will want to see just how well Disney held up.