Walt Disney Co. (ticker: DIS) reported fiscal third-quarter earnings on Tuesday after the bell, beating estimates on both earnings per share and revenue. That, however, didn’t seem to assuage skeptical investors, as DIS stock lost more than 1 percent in after-hours trading.
Revenue for the entertainment company was up 9 percent from last year to $14.28 billion and earnings per share rose nearly 12 percent to $1.62 per share.
Analysts were looking for EPS of $1.61 on revenue of $14.15 billion in the quarter.
When Disney missed on second-quarter earnings three months ago, it was the first time in the last 14 quarters that the entertainment giant had disappointed Wall Street, so back-to-back earnings misses would have been highly unusual.
Capital expenditures rose by $630 million to $3.7 billion in the fiscal third quarter, driven by higher spending at Disney’s core theme parks in Orlando, California, and Hong Kong.
Disney shares were on rocky footing going into the report, with shares down more than 8 percent on the year. The Standard & Poor’s 500 index, by contrast, was up nearly 7 percent in 2016 through Tuesday’s close.
[Read: The 7 Smartest Acquisitions of All Time.]
ESPN concerns. A large part of Disney’s underperformance recently has been due to concerns over its media networks segment, where sports network ESPN has historically been Disney’s most significant cash cow. However, with sites like Netflix (NFLX), Amazon (AMZN) Prime Video, and Hulu encouraging millions of Americans to ditch cable in favor of streaming TV services, ESPN’s subscriber numbers have dwindled.
Unfortunately for DIS investors, the House of Mouse doesn’t break out subscriber statistics for ESPN, making results a bit more opaque than some on Wall Street might want. Still, DIS stock may very well be falling despite Tuesday’s beats because of the performance in its cable division. In that segment, both revenue and operating income advanced just 1 percent last quarter; the previous quarter revenue was down 2 percent but operating income was up 12 percent.
The language in the report may have been even more damning: Although it doesn’t break out subscriber numbers, DIS did note that results were impacted by a decline in subscribers — phrasing that was partially behind the company’s 5 percent post-earnings decline three months ago.
To help stem the ebbing subscriber base that streaming TV has helped encourage, Disney announced the acquisition of 33 percent of a video streaming company formed by the MLB, BAMTech, in conjunction with its earnings.
“Even the most die-hard fans of ESPN, who insist that ‘sports is too popular’ to defect, have realized the reality that ESPN is no longer the golden growth boy for Disney,” says K C Ma, professor of finance at Stetson University. “Quietly, Disney has been planning for the inevitable, including raising rates to mitigate subscriber losses, exploring new platform providers or even streaming options.”
[Read: How to Invest in Streaming Media.]
Studio division is the star. On a bright note, “Captain America: Civil War,” “The Jungle Book” and “Finding Dory” all premiered in the fiscal third quarter, putting up impressive performances. Combined, the three movies have already grossed nearly $3 billion at the box office. Studio entertainment revenue was up 40 percent from last year, and operating income for that segment was up an impressive 62 percent. Any pessimism certainly isn’t coming from there.
In fact, CEO Bob Iger, who oversaw the acquisitions of Pixar, Marvel Entertainment, and LucasFilm, has presided over some of the most successful acquisitions of all time, putting Disney in a position for long-term success in the studio biz.
While the trio of blockbuster movies under its belt certainly helped Disney’s studio division, that wasn’t the biggest development of the quarter for long-term investors. The opening of Shanghai Disney, Disney’s first theme park in mainland China, takes the cake in that respect.
Shanghai Disney should undoubtedly be a long-term winner for DIS stock, as the park is within a three-hour drive of 300 million Chinese citizens, playing host to a far larger market than any of its current theme parks.
[Read: How to Invest in China’s Changing Economy.]
Since Shanghai Disney opened at the very tail end of the quarter — the quarter ended July 2 and the park opened on June 16 — much of its financial impact has yet to be realized.
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Disney Rebounds, But DIS Stock Falters originally appeared on usnews.com
