The Walt Disney Co. reports its fiscal second-quarter earnings after the closing bell on Wednesday, closing out what has been an unusually turbulent earnings season for the entertainment industry.
Disney will be the last major Hollywood company to report results for the first three months of the year. Investors hope the world’s largest entertainment conglomerate will calm frayed nerves after Netflix kicked off the industry-wide anxiety on April 19 by reporting a 200,000 drop in subscribers — its first loss in more than a decade — and warned of steeper declines ahead as layoffs have already begun.
The announcement ripped through Wall Street, as investors began reevaluating the industry’s aggressive shift into streaming subscriptions. Netflix blamed subscriber weakness on customers sharing accounts, increased competition and a looming plateau in how many new customers can be signed up.
Analysts hope Disney can demonstrate that streaming remains a key plank for entertainment companies going forward.
Here’s what will matter to Wall Street in Wednesday’s earnings report:
The numbers
Wall Street expects Disney to report second-quarter profit of $1.07 a share on revenue of $18.91 billion. In the year-ago period, the company reported a mixed quarter, with diluted earnings per share of 50 cents on revenue of $15.6 billion.
Disney+
The streaming service’s subscriber growth will be the key metric to watch, especially after Netflix rattled the market and rival studios produced mostly lackluster sub numbers. Analysts predict the number of new subscribers will grow by 5.3 million during the quarter to a total of nearly 135.1 million. This is well above the 103.6 million reported during the year-ago period.
However, that pace won’t be enough if Disney is going to reach its own subscription goals. The company said in February it expects to report between 230 million and 260 million subscribers on its streaming platforms worldwide by September 2024. Looking ahead, analysts expect a flood of content during the back half of the year will boost third-quarter subscriptions by between 10-12 million.
Stock price
Strong streaming numbers may help offset what has emerged as a pretty brutal year for the company’s stock price — even before the market-wide plunge in the last week on fears of recession. Disney shares have declined 41% this year, trading at about $108 in the hours before earnings will be released. And that kind of steep drop is almost unheard of among the blue-chip members of the Dow Jones index that tracks stock performance of the nation’s 30 largest companies.
Further, if you strip out the two years of pandemic-related market volatility, Disney is trading at levels not seen since December 2018. And it’s not the only entertainment company that’s in the pits.
“Is anything good happening?” analyst Rich Greenfield wrote in a tweet referring to metrics used to judge the performance of entertainment and media companies, such as advertising, streaming subscriptions and cable bundling. (A few years ago, Disney’s biggest worry was the decline in viewership and ad revenue at ABC and the loss of cable subscribers for Disney-owned ESPN — and those fundamentals have not changed.)
Theme parks
The stock’s declines are partly related to recent entanglements in hot-button social issues such as Florida Gov. Ron DeSantis’ so-called “Don’t Say Gay” law (which has evolved into a battle over the company’s special tax status in Florida). Some conservative critics have even threatened to cancel Disney+ or theme park vacations in protest.
However, the company has consistently done well during the second half of its fiscal year as families take vacations to theme parks, book Disney cruises or even go out to enjoy a summer blockbuster.
Bank of America Securities analyst Jessica Reif Ehrlich expects “the demand will be really high for cruise ships and theme parks this summer because there is massive pent-up demand” and that investors have been conditioned to expect stronger results in the second half of the year for those business lines.
Film
Disney had almost no theatrical presence in the first quarter of 2022. The only film to hit theaters was “Death on the Nile,” the long-delayed Agatha Christie mystery directed by Kenneth Branagh from 20th Century, which garnered $130 million in worldwide box office.
The big Q1 story for Disney movies was the decision to pull Pixar’s ”Turning Red” from theaters to make it a Disney+ exclusive where it had the best opening-weekend viewership for any original film on the streamer.
