When earnings come out for Walt Disney Co (NYSE:DIS) after the market closes today, analysts don’t expect anything spectacular. And that’s despite the fact that, in some ways, this has been the most spectacular year in the company’s history.
If Disney earns $1.18 per share on revenues of $13.47 billion, that would beat the whisper numbers. (DIS never offers up guidance.) As September is the company’s fourth quarter, that would mean full-year earnings of $5.78 per share, up 12.2%, on revenue of $56.1 billion, up 6.9%.
At present prices, that would mean a price-to-earnings ratio of just above 16 — a little short of the market. The dividend of 71 cents translates into a yield of just 1.51%. That’s likely at least is contributing to the poor analyst marks. Less than half the experts covering Disney stock have it as a buy, with more calling it a hold.
The story here, though, is what’s moving inside those numbers.
Walt Disney Co is becoming a movie company again.
The Mouse House of Movies
Disney movies are dominating the global box office this year, with a 23.7% share worth $2.239 billion in revenue.
Key to all this are the purchases of Marvel and Lucasfilm, both for $4 billion. The two deals — the first in 2009 and the second three years later — each brought a stable of characters and spin-offs to the studio.
Disney got half that back on its first Star Wars movie, The Force Awakens, which broke a host of box office records. DIS has three more movies based on the characters in development. All told, and it has three more movies based on the characters in development.
But it is Marvel, which the studio bought without its treasured Spider-Man character, that has been the real standout, delivering literally dozens of hits. Some of these, like the newly-released Doctor Strange, feature more bit players in the comics. The key has been getting big talent to play the characters, like Benedict Cumberbatch, who is now Doctor Strange.
What such a string of hits should do is set Disney up for the ultimate thrill ride, sending them into global after-markets and eventually into its theme parks.
But then, there’s the problem.
What to Do About Cable
The cord-cutting phenomenon has only accelerated since CEO Bob Iger said a little over a year ago that it was facing a “modest decline” in subscribers, leading to panic throughout the media industry.
Now the Nielsen ratings agency estimates that 621,000 customers cut the ESPN sports networks out of their diet in just one month — a figure Disney management disputes, but which the market believes. This means that they are down 3 million-4 million viewers from where they were when they signed a record-setting rights deal with the NBA just two years ago. That deal still has seven years to run.
ESPN signed a host of sports leagues for big money assuming it could make the contracts pay through growth and increased fees from cable operators. But now its partners, to keep subscriber counts up, are offering “skinny bundles,” some of which do not include ESPN.
The fear is that is bleeding into the results of other Disney-owned networks. Only ESPN is ranked in the top 10 among ad-supported cable networks. Disney’s ABC Network is also falling behind rivals.
All this could limit the after-market value of Disney’s films. At least, that’s the fear.
Bottom Line for Disney Stock
The reality is that, at least for now, the rot from broadcasting and the rise of movie box office, combined with the opening of Shanghai Disney, are balancing each other out, and allowing Disney to show continuing momentum.
But for how long?
That’s why Disney is still trading at well below its record price of $122 per share despite all that Star Wars, Doctor Strange and Shanghai Disney can do for them.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long DIS.
