Disney soars 8% in premarket as costs control boost profit margins 📈

2:00 PM 8 February 2024

Shares of entertainment giant Disney (DIS.US) are gaining nearly 8% today before the open, although the giant reported fairly successful quarterly results, although both revenue and Disney+ subscriptions fell short of expectations. The reason for this market reaction is also due to optimistic comments from CEO, Bob Iger, as well as a cost-cutting policy positively impacting net income and growing hopes for faster streaming profitability. Slightly lower revenues were offset by an increase in profits.

Revenues: 23.55 billion vs. 23.8 billion forecast (0.2% y/y increase)

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Earnings per share: $1.22 vs. $0.99 forecasts

  • Disney+ subscriptions: 149.6 vs 151.1 million forecasts
  • Entertainment revenue: $9.88 billion vs. $10.52 billion forecasts (-6.9% y/y)
  • Sports channel revenues: $4.84 billion vs. $4.62 billion forecasts (4.2% y/y)
  • Revenue from customer experience segment: $9.13 billion vs. $9.04 billion forecasts (6.9% y/y)
  • Hulu subscriptions: 4.6 million vs. 4.62 million forecasts

Key takeaways from the report

  • Disney announced a $3 billion share buyback and raised its dividend by 50%. The company's CEO, Bob Iger, stressed that the report proved that the company had risen to the occasion and had just entered a new era
  • Streaming losses are declining, and Disney intends to start fighting against password sharing (similar to Netflix) later this year. It estimates reaching streaming profitability this fall, this year
  • The group is planning a $1.5 billion investment in Epic Games (known for Fortnite). The two companies are expected to collaborate on products
  • Management conveyed that in Q1 2024 it has already managed to save approx. USD 500 million and estimates that it will reach or exceed its planned USD 7.5 billion in savings this year 
  • The loss from the sports business (ESPN) came in at almost half the expected level (down 37% y/y). The company plans additional monetization of the ESPN business in the future by creating an additional application, with sports analysis and betting functions 
  • Operating income from the entertainment business came in nearly 30% above forecasts, although revenue in the sector fell by nearly 7%. Operating income from theme parks rose 8% to $3.1 billion. The theatrical releases of The Marvels and Wish performed rather poorly, however
  • The experience division brought in $3.11 billion in operating income, compared to $2.99 billion in forecasts, up 8.5% y/y
  • Losses in streaming services (Disney+, Hulu and ESPN+) fell by $300 million k/k, thanks to price increases and higher advertising revenues. 

Disney chart (DIS.US)

Disney shares will open today near the 23.6 Fibonacci retracement of the downward wave that began in 2021. Overcoming it could theoretically open the stock up to $126 per share.

Source: xStation5

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