In a market like the one we’re currently experiencing, Disney (NYSE:DIS) stock will have to deliver a homerun second-quarter 2022 earnings report on Wednesday for DIS stock to get any boost from its results.
Down 30% year-to-date and almost 41% over the past year, shareholders could use some good news from the entertainment conglomerate. Unfortunately, the tea leaves suggest its results will be a mixed bag.
If you’re thinking of buying Disney stock to benefit from an earnings bump, there’s one reason it could happen and another why it probably won’t.
In Normal Times, DIS Stock Would Jump on News
Disney operates two business segments: Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP).
The former include ABC Television, ESPN, 50% of A+E Television Networks, ESPN, Disney’s movie studios including Twentieth Century Studios, Marvel, Pixar, and Lucasfilm, and of course, its direct-to-consumer (DTC) streaming business including Disney+ and ESPN+. In Q1 2022, its DMED segment accounted for 67% of its $21.8 billion in overall revenue.
The latter includes the company’s theme parks and resorts such as Disney World in Florida, Disneyland Resort in California, Disneyland Paris, 48% of Hong Kong Disneyland Resort, and 43% of Shanghai Disney Resort, Disney Cruise Line, the licensing of its trade names, and the Disney retail, online and wholesale businesses. In Q1 2022, it accounted for 33% of sales.
DPEP continues to return to pre-pandemic numbers. It generated an operating profit of $2.45 billion from $7.23 billion in revenue in the first quarter$2.45 billion from $7.23 billion in revenue. In Q1 2019, DPEP had an operating income of $2.34 billion from $7.40 billion in sales.
Therefore, investors can expect that its Q2 2022 results will be significantly higher than both Q2 2022 and Q2 2019.
If the markets were jumping, you could expect a nice boost in the share price from this news. They’re not, so the news will likely only offset any adverse reaction from its DTC segment.
The Netflix Effect
After Netflix (NASDAQ:NFLX) reported it lost 200,000 subscribers in Q1 2022 and expected to lose two million more in the second quarter, investors have been skeptical about all streaming services, including Disney+.
The estimate for Disney+ subscribers at the end of the second quarter is 135.2 million, 4.2% higher than last quarter and 30.5% higher than Q2 2021. FactSet estimates suggest it will add 5.3 million subscribers in the quarter. Disney’s long-term goal is at least 230 million worldwide by September 2024. The current projection for new Disney+ subscribers in Q3 2022 is 11 million.
If either of the 5.3 million or 11 million numbers are less than that, there’s a good possibility Disney’s share price will fall in Thursday trading.
Investors will be paying attention to management’s comments about its DTC business. If they’re positive, the damage should be minimal. However, if investors get a hint that the long-term goal is in jeopardy, that’s an entirely different ball game.
From where I sit, I don’t think there will be enough good news from its DPEP segment to deliver meaningful gains on Thursday. That’s especially true if Disney+ delivers a stinker.
I would not buy DIS stock before earnings.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
