Why Is Disney (DIS) Down 4.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Walt Disney (DIS). Shares have lost about 4.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Disney due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Disney Q3 Earnings Top Estimates, Revenues Jump Y/Y

The Walt Disney Company reported third-quarter fiscal 2022 adjusted earnings of $1.09 per share, beating the Zacks Consensus Estimate by 15.96% and surging 36.3% year over year.

Revenues jumped 26.3% year over year to $21.50 billion and beat the consensus mark by 1.83%.

Segment Details

Media and Entertainment Distribution (65.6% of revenues) revenues increased 11.3% year over year to $14.11 billion.

Revenues from Linear Networks inched up 3.3% year over year to $7.19 billion. Direct-to-Consumer revenues surged 18.8% year over year to $5.06 billion. Content Sales/Licensing and Other revenues soared 25.6% year over year to $2.11 billion.

Parks, Experiences and Products revenues (34.4% of revenues) surged 70.3% year over year to $7.39 billion.

Domestic revenues were $5.42 billion, significantly up from $2.66 billion reported in the year-ago quarter. International revenues increased 49.8% year over year to $788 million in the reported quarter.

Disney’s nearest peer, Comcast reported strong second-quarter 2022 results in its Theme Park business.

Comcast generated Theme Park revenues of $1.8 billion, up 64.8% year over year, reflecting higher attendance and increases in guest spending at its parks in the U.S. and Japan.

Meanwhile, revenues from Consumer Products increased 2.1% year over year to $1.18 billion.

Subscriber Details: Disney+

ESPN+ had 22.8 million paid subscribers at the end of the fiscal third quarter compared with 14.9 million at the end of the year-ago quarter.

Disney+, as of Jul 2, 2022, had 152.1 million paid subscribers compared with 116 million as of Jul 3, 2021.

The rapidly growing subscriber base strengthens Disney’s position in the increasingly saturated streaming space currently dominated by Netflix and the growing prominence of services from Apple, Peacock, Amazon prime video and HBO Max.

Netflix lost 0.97 million paid subscribers globally, lower than its estimated loss of two million users. Netflix had added 1.54 million paid subscribers in the year-ago quarter.

Apple’s streaming service, Apple TV+, continues to gain recognition with its critically acclaimed and popular shows like Ted Lasso. This year, Apple TV+ has earned 52 Emmy nominations, with the second season of Ted Lasso getting 20 nominations overall. Another show, Severance, has garnered 14 total nominations in its first season.

Meanwhile, Disney’s Hulu ended the quarter with 46.2 million paid subscribers, up from 42.8 million reported in the year-ago quarter.

The average monthly revenue per paid subscriber for ESPN+ increased 2% year over year to $4.55.

The average monthly revenue per paid subscriber for Disney+ was $4.35, up 5% year over year.

The average monthly revenue per paid subscriber for Disney’s Hulu SVOD-only service declined 2% year over year to $12.92.

The average monthly revenue per paid subscriber for Disney’s Hulu Live TV + SVOD service rose 5% from the year-ago quarter to $87.92.

Operating Details

Costs & expenses increased 21.7% year over year to $19.07 billion in the reported quarter.

Segmental operating income was $3.57 billion, which jumped 49.7% year over year.

Media and Entertainment Distribution’s segmental operating income declined 31.8% year over year to $1.38 billion.

Linear Networks’ operating income increased 12.9% to $2.47 billion.

Direct-to-Consumer operating loss was $1.06 billion, wider than the year-ago quarter’s loss of $293 million. The increase in loss was primarily attributed to higher losses at Disney+, and to a lesser extent, at ESPN+.

Content Sales/Licensing and Other operating losses were $27 million against operating income of $132 million reported in the year-ago quarter.

Parks, Experiences and Products’ operating income was $2.19 billion compared with the year-ago quarter’s operating income of $356 million.

The domestic segment reported an operating income of $1.65 billion compared with $2 million reported in the year-ago quarter.

The international segment reported a loss of $64 million compared with an operating loss of $210 million reported in the year-ago quarter.

Consumer Products’ operating profit increased 6.2% year over year to $599 million.

Balance Sheet

As of Jul 2, 2022, cash and cash equivalents were $12.96 billion compared with $13.27 billion as of Apr 2, 2022.

Total borrowings were $51.60 billion as of Jul 2, 2022 compared with $46.6 billion as of Apr 2, 2022.

Free cash flow was $1.92 billion in the reported quarter compared with free cash flow of $1.47 billion in the previous quarter.

Outlook

For fiscal 2022, Disney expects capital expenditures to be $5 billion compared with fiscal 2021 capital expenditure of $3.6 billion.

Disney expects cash content spending to be roughly $30 billion. For the next couple of years, Disney expects this spending to be roughly in the low $30 billion range.

Moreover, for 2024, Disney+ subscriber base is now expected between 135 million and 165 million. Disney+ Hotstar now expects to have 80 million subscribers by the end of fiscal 2024.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -25.22% due to these changes.

VGM Scores

At this time, Disney has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Disney has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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