What to Expect From Disney’s First Earnings Report Since the Mega Fox Deal

On Wednesday Disney will face the Wall Street community in its first quarterly earnings report since closing its $71.3 billion deal to lap up the films, franchises and studio operations of 21st Century Fox’s film and TV entertainment business. But despite the oversize success of “Avengers: Endgame” — which opened in this quarter and has grossed an astonishing $2.2 billion worldwide in less than two weeks — CFRA Research media analyst Tuna Amobi expects that the media giant’s earnings for the pre-“Endgame” quarter that ended March 31 to be “mixed at best.” Analysts tracking the company expect Disney to report per-share earnings of $1.59, according to estimates gathered by Yahoo Finance. That would be down compared with the $1.84 earnings Disney reported during the same period a year ago when “Black Panther” emerged as a surprise mega-blockbuster. Disney’s revenue for the quarter is also expected to be down compared with last year, with analysts forecasting $14.39 billion in revenue, compared with $14.55 billion a year ago. Other questions await Disney as it forges a path as an even more dominant player in Hollywood. The first centers on absorbing the massive Fox operations. The ink had barely dried on Disney’s deal when the studio began the process of laying off what’s expected to be about 4,000 employees from the the Fox studio lot. The cuts came hard and swift, and it was only the beginning. Disney leadership has said it plans to have roughly $2 billion in cost saving synergies as job cuts continue to eliminate overlapping business functions. Investors still wonder about the company’s ability to achieve those synergies. “They’ve answered a lot of questions already,” Amobi said. “But this quarter is more about looking toward the future and I think people will be listening to see if they can provide more clues as far as the integration of Fox, like outlook on synergies.” Another big question is Hulu, the 11 year-old streaming service in which Disney now has a 60% stake. (And possibly more since AT&T recently sold its 10% minority stake in Hulu back to Hulu and there’s been speculation that Comcast might sell its 30% stake to Disney. If that happens, Disney would have complete ownership of the streamer. Disney is of course launching its own streaming service, Disney+, later this year and has said that it would likely bundle its Disney+, Hulu and ESPN+ services into one offering. BTIG analyst Rich Greenfield has said that the company’s approach to Hulu thus far has been confusing and he expects Disney would simply fold it into Disney+ if it were to gain complete control of Hulu, which now boasts 28 million subscribers. The one potential hitch is that Disney+ has been billed as a family-friendly streamer and R-rated content (like Hulu’s award-winning drama “The Handmaid’s Tale” or the recently acquired Fox franchise “Deadpool”) was conspicuously absent from the lineup announced earlier this year. “The overwhelming majority of Hulu content is family-friendly and would nicely complement Disney+. Not to mention, a broader array of content would expand the [total addressable market] and drive down churn,” Greenfield wrote in a blog post. “While Disney continues to talk down the concept, we have to believe they would take a different approach if they owned 100% of Hulu.” There are also questions swirling about Disney+ and the upstart service’s aggressive $6.99 monthly price, a cost that is significantly less than Netflix and most other streamers and that analysts don’t expect to last for very long after they achieve a certain scale in the number of subscribers. “They’re coming in at that $6.99 price point, and somewhere in their mind that is a loss leader,” Paul Hardart, head of the Entertainment, Media and Technology Program at New York University, said. “I’d be curious of how they project to increase that price over time. Because they’re going to use that [price] to try and get a big number of subscribers, and over time they’ll probably pivot and start to increase the mind.” Whether there are any plans to increase that price is yet to be seen, but how the company is thinking about the rate of price hikes is likely to be of interest. Disney expects the new streaming service to become profitable by 2024, with anywhere between 60 and 90 million subscribers. Sean Burch contributed to this report.