Interactive Investor

ii view: why Disney shares just rallied to 9-month high

This entertainment titan continues to push initiatives to improve performance. Buy, sell, or hold?

8th February 2024 11:36

Keith Bowman from interactive investor

First-quarter results to 31 December

  • Revenue flat at $23.5 billion
  • Adjusted earnings per share up 23% to $1.22
  • Dividend up 50% from the previous quarter to $0.45 per share
  • Disney+ subscribers of 149.6 million, down 1.3 million from 3 months ago

Guidance:

  • Now expects full-year 2024 adjusted earnings to increase by at least 20% from 2023 to around $4.60 per share

Chief executive Bob Iger said:

“Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences.”

ii round-up:

Entertainment giant The Walt Disney Co (NYSE:DIS) has detailed earnings which beat Wall Street forecasts, as it raised its full-year 2024 profit forecasts due to cost cuts, reducing Disney+ related losses and continued strength at its theme parks. 

First-quarter adjusted earnings rose by close to a quarter year-over-year to $1.22 per share, exceeding analyst forecasts for $0.99, with management now expecting annual earnings to rise by at least 20% to $4.60 per share.

Shares in the Dow Jones company climbed around 7% in post results trading, having risen 4% in 2023. That’s way below a 65% increase for streaming rival Netflix Inc (NASDAQ:NFLX) and compares to a 14% rise for the Dow itself. 

Overall, Disney revenues stayed flat year-over-year at $23.5 billion. Sales at its Experiences division including its theme parks rose 7% to $9.1 billion. Sports related sales and including its ESPN TV channels improved 4% to $4.8 billion. That countered a 7% retreat at its Entertainments division, including its streaming and film studio businesses, to $10 billion. 

Disney management remains pressured by activist investor Nelson Peltz. Back under its former head Bob Iger, the owner of film franchises including Star Wars remains on track to meet or exceed its $7.5 billion annualised savings target by the end of this current financial year. 

The California headquartered company continues to expect its overall streaming business of both Disney+ and Hulu to achieve profitability by the fourth quarter of fiscal year 2024.  

As expected by management, paid Disney+ subscribers fell 1.3 million from the prior quarter given increased subscription fees, but average revenue per user rose $0.14.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. 

ii view:

Started in October 1923 by brothers Walt and Roy, Disney today offers investors a one-stop entertainment business. Its many brands include Pixar, Marvell Studios, Lucasfilm, 20th Century Studios, ABC News, National Geographic, and Hulu. The Entertainment division including film production and traditional and streaming TV channels generates its biggest slug of sales at just under a half, followed by Experiences at just over a third and Sports the balance of around a fifth. 

Management goals include achieving sustained profitability at its streaming business, building ESPN into the preeminent digital sports platform, and improving the output and economics of its film studios. 

For investors, intense competition across the streaming sector including competition from both Amazon.com Inc (NASDAQ:AMZN) and its prime service and Apple Inc (NASDAQ:AAPL) are not to be overlooked. Reigniting creative flare at its film studios and leaning less on sequels remains a work in progress, while the return of previous head Bob Iger still leaves questions unanswered and uncertainty over likely future leadership.  

On the upside, Disney's diversity of operations regularly sees positives for one division counter challenges for another. Ongoing exposure to sports content remains invaluable given its ability to generate large audiences, with the launch of ESPN streaming service expected in late 2025. A recent $1.5 billion investment into Fortnite owner Epic Games adds to its gaming interests, while its focus on shareholder returns is underlined by an increased dividend and the launch of a $3 billion share buyback programme.  

For now, and with continued transformation supported by its vast experience in navigating the ups and downs of the media industry, shares in this media giant appear worthy of ongoing investor support. 

Positives: 

  • Geographical diversity, strong brands, and media content bank
  • Reducing costs

Negatives:

  • Cost pressured consumers may cut entertainment spending
  • Intense competition

The average rating of stock market analysts:

Buy

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