- Wall Street analysts view Disney’s earnings as solid, but focus on the company’s plans to deliver content through a streaming service.
- Barclays says Disney’s upcoming Investor Day is likely to be a catalyst for the stock given the importance of the initiative.
- “Augmented further with Fox’s content production and international assets, as well as a majority ownership in Hulu, we believe New Disney can deliver healthy growth,” Morgan Stanley says.
Disney’s better-than-expected earnings and upcoming streaming service have Wall Street glowing as the longtime media giant enters a whole new world of content delivery.
Shares jumped nearly 3 percent in early trading Friday, adding to their 8 percent gain for the year.
Though analysts were impressed with Disney’s studio revenue, which grew 50 percent from the prior year, many focused on its new over-the-top strategy, known as Disney+.
Set to launch in late 2019, the OTT platform will host the company’s expansive movie collection (including Pixar content) and will be home to all future movies, starting with the 2019 theatrical slate, which includes “Toy Story 4,” “Frozen 2” and a live-action “The Lion King.”
Barclays analyst Kannan Venkateshwar told clients that the company’s upcoming Investor Day is likely to be a catalyst for the stock given the importance of the initiative.
“Disney also announced plans to host an Investor Day in April 2019, to announce more details on its OTT strategy,” the Barclays analyst wrote in a note. “We expect this to be a material catalyst for the stock, especially if the company provides enough details around investment needs of the service to de-risk estimates.”
Others, such as Morgan Stanley, said the broader impact of Disney’s direct-to-consumer offering will depend on the timing of its deal with Fox.
“Augmented further with Fox’s content production and international assets, as well as a majority ownership in Hulu, we believe New Disney can deliver healthy growth while executing on a successful transition into the streaming future of TV,” analyst Benjamin Swinburne wrote in an investor note.
Here is what some of Wall Street’s top analysts thought of Disney’s results.
“With fiscal fourth-quarter results ahead of estimates driven by Studio and content licensing, the Fox transaction likely closing earlier than expected, and an April investor day planned to lay out specific plans for Disney’s streaming ambitions, we reiterate our bullish outlook for shares. … Direct-to-consumer (DTC) strategy ramps in FY19 ahead of Disney Plus launch, more clarity on financial impact forthcoming: The broader financial impact of Disney’s direct-to-consumer streaming plans will depend on the timing of deal close with Fox, but independently Disney continues to invest in content for both its ESPN Plus and Disney Plus products.”
Bank of America Merrill Lynch
“Disney fiscal fourth-quarter results were well ahead of expectations, as strong Studio and Media Networks were partially offset by softer Theme Parks. All-in, DIS rev. grew +12% and segment operating income grew +17%, exhibiting significant operating leverage. Key drivers include: (1) better Cable Network operating income as a -6% decrease in ESPN adv., BAMTech dilution and higher prog. were partially offset by +5% affiliation fee growth, (2) strong Broadcasting operating income as retrans/political were aided by strong licensing (Blackish / Runaways / Cloak & Dagger / Iron Fist), (3) soft equity on greater Hulu losses / A&E drag.”
“Relative to Goldman Sachs’s estimate, a 1% operating income miss was more than offset by a lower-than-expected tax rate. The operating income miss was driven by Theme Parks, partially offset by beats in Studio and Broadcasting. … The Studio beat was driven by higher-than-expected international theatrical revenue and international content licensing, while the Broadcasting beat was driven by program licensing. Ironically, much of this quarter’s upside and growth was driven by the licensing of film and TV content to third parties, and much of the earnings call focused on Disney’s strategic shift to direct-to-consumer, which will de-emphasize these wholesale revenue streams.”
“Disney now expects the Fox deal to close in 1Q’19, ahead of earlier commentary that implied a mid 2019 close. There has been some concern among investors about approval in China which should be assuaged with this new timeline. Disney also announced plans to host an Investor Day in April 2019, to announce more details on its OTT strategy. We expect this to be a material catalyst for the stock, especially if the company provides enough details around investment needs of the service to de-risk estimates.”
“Disney reported solid fiscal fourth-quarter results, with EPS of $1.48 ahead of our $1.32, on strong Studio and Media results. The call largely focused on what lies ahead for Disney – the acquisition of the FOX assets, greater control of Hulu, and Disney+. FOX Deal on Track for Spring Close. Disney expects the FOX deal will close by the end of C1Q/early April, and expects to hold an investor day in April to discuss the deal, and the DTC products. Total company affiliate revenue grew 5% in the quarter, benefiting 7% from rate (retrans and cable), offset by 1% sub losses and 1% from F/X.”
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