ii view: Disney shares roar

by Keith Bowman from interactive investor |

Walt Disney looks to commence battle with Netflix. Investors are watching closely. 

Fourth-quarter results to 28 September 2019

  • Revenue up 34% to $19.1 billion
  • Segment operating income up 5% to $3.44 billion
  • Adjusted earnings per share down 28% to $1.07

Chief executive Robert A. Iger said:

"Our solid results in the fourth quarter reflect the ongoing strength of our brands and businesses. We've spent the last few years completely transforming Walt Disney (NYSE:DIS) to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we're excited for the launch of Disney+ on November 12."

ii round-up:

Owner of film studios including Pixar Animation, Marvel and the "Star Wars" franchise, Disney reported fourth quarter earnings which topped analysts' estimates. 

Fuelled by the success of its Lion King remake and Toy Story 4 films, along with lower than expected expenses for its soon to launch Disney+ streaming service, adjusted earnings of $1.07 per share beat forecasts of just below a dollar. 

Sales and for its Studio Entertainment division jumped by 52% to $3.31 billion. Costs in relation to the launch of Disney+ in coming days contributed to a 5% decline in full-year profitability to $14.87 billion. 

Internet streaming service Disney+ will initially broadcast in the US, Canada and the Netherlands, with a further rollout to Europe later next year. Disney, with its catalogue of movies and children's entertainment, will compete with current market leader Netflix (NASDAQ:NFLX) and the just-launched offering from Apple (NASDAQ:AAPL)

Profit for its Studio Entertainment division rose by 79% to $1.08 billion, while its Parks, Experiences and Products business enjoyed a 17% hike to $1.38 billion.

Shares in the entertainment group rose by more than 3% in after-hours US stock market trading. 

ii view:

The Disney brand is iconic and recognised globally. The previous acquisition of Lucas Films and the Star Wars franchise further elevated its brand portfolio.

But the acquisition of further content from Fox and the pending launch its Disney+ streaming service is what currently excites investors. A strong content bank is expected to appeal to consumers, while a monthly subscription fee of $6.99 and below Netflix's most popular service underlines its intent. 

For investors, a 20%-plus gain in the share price year-to-date and a forward price/earnings (PE) ratio of around 23 and above the 10-year average at under 20 offer some caution. The battle with Neflix and rival content providers will need to be watched very closely. However, Disney does have vast experience in the entertainment arena, a selection of other diversifying businesses and a forward PE metric comfortably below that of Netflix, implying long-term appeal. 

Positives: 

  • Diversity of businesses, strong brands and media content bank
  • Launching a streaming service

Negatives:

  • Apple has just commenced its own streaming service
  • Consumer leisure spend is cyclical and vulnerable to economic downturns

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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