eResearch | On August 6, 2019, the Walt Disney Company (NYSE: DIS; LSE: 0QZO.L; DE: WDP) reported FQ3/2019 financials which had mixed feedback as investors were looking forward to updates on the Company’s streaming platforms but were taken aback due to revenue below consensus estimates and significant operating losses from its recent acquisition of 21st Century Fox.
Disney plans to compete in the online video streaming industry as Netflix, Inc. (NASDAQ: NFLX; LSE: 0QYI; DE: NFC) dominates as the first mover and other competitors start their own streaming services including: AT&T Inc. (NYSE: T; LSE: 0QZ1) , who acquired Warner Media in 2018 with plans to launch its streaming service HBO Max in 2020, and Comcast Corporation (NASDAQ: CMCSA; LSE: 0QYF), who plans to launch its streaming service NBCUniversal in 2020.
Disney – FQ3/2019 Earnings Highlights
- Revenue increased by 33% quarter-over-quarter to US$20.2 billion compared with US$15.2 billion, but missed analyst estimates of US$21.4 billion.
- Direct-to-consumer operations, which includes its streaming platform, incurred an operating loss of US$553 million compared with the Company’s guidance of an operating loss of US$460 million for the quarter; the Company expects operating losses to further increase to US$900 million in FQ4/2019.
Inherited movie titles from the Company’s 21st Century Fox acquisition attributed a US$170 million operating loss, including films such as Dark Phoenix, which only grossed US$65 million domestically on a US$200 million budget.- The Media Networks segment reported positive revenue growth of 21% quarter-over-quarter to US$6.7 billion, attributed to consolidation of 21st Century Fox businesses (FX and National Geographic) and a boost from ESPN due to higher advertisement revenue from the NBA finals games.
- The Studio entertainment segment increased 33% quarter-over-quarter to US$3.8 billion with operating income increasing 13% to US$729 million, mainly attributed to performance of box office hits such as Avengers: Endgame, which grossed US$2.79 billion in revenue and broke Avatar’s record of US$2.78 billion.
- Disney’s other business segment, Disney’s Parks, Experiences, and Products reported increased revenue of 7% to US$6.6 billion with operating income increasing 4% to US$1.6 billion, mainly attributed to an increase in consumer product sales and higher ticket prices at Disney Paris.
- The Company broke its own annual global box office record, grossing approximately US$8 billion with five months still remaining in 2019.
On the earnings call, Disney announced that it will offer its three streaming services Hulu (US$6/m), ESPN (US$5/m), and Disney + (US$7/m), as a bundle for US$13 per month. The platform will include box office hits from Marvel, Pixar, Star Wars, and Disney.
Disney’s CEO Bob Iger agrees with concerns that even with its bundled package of films and TV shows, it will fall short in content compared with Netflix, but he believes that the strength in consumer loyalty for brands such as Disney, Marvel, and Star Wars will invigorate and attract consumers.
Even though Disney’s stock price rose more than 20% after announcing plans to launch its own streaming service, the stock price was down more than 5% today following FQ3/2019 earnings, over investors’ concerns about the Company’s US$71.3 billion acquisition of 21st Century Fox may produce more films with uncertain box office returns.
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Walt Disney Co. (NYSE: DIS; LSE: 0QZO.L; DE: WDP)
Located in California, United States, Walt Disney is a diversified multi-national media conglomerate that is known for its film studio division which includes Walt Disney Studios, Pixar, Marvel Studios, and Lucasfilm. On March, 2019, Walt Disney acquired 21st Century Fox for US$52.4 billion, to add content to their up and coming streaming platform, Disney+. Walt Disney currently trades at US$134.22 per share with a market capitalization of US$241.5 billion.
Netflix, Inc. (NASDAQ: NFLX; LSE: 0QYI; DE: NFC)
Headquartered in California, United States, Netflix is a media-services provider with over 140 million paid subscribers for their streaming platform. Since 2012, in preparation for competition to their streaming platform, Netflix has taken a more active role as a producer and distributor for both movies and TV shows. Netflix currently trades at US$301.25 with a market capitalization of US$131.9 billion.
AT&T Inc. (NYSE: T; LSE: 0QZ1)
Headquartered in Texas, United States, AT&T is the word’s largest mobile telephone service company. In 2018, it acquired Warner Media for US$85 billion, to utilize their HBO streaming platform to compete against Netflix. AT&T currently trades at US$34.01 with a market capitalization of US$248.51 billion
Comcast Corporation (NASDAQ: CMCSA; LSE: 0QYF)
Located in Pennsylvania, United States, Comcast is a telecommunication conglomerate that is the second largest broadcasting and cable television company in the world. Since acquiring NBCUniversal in 2011, it has also become a producer of movies and TV shows, with its own streaming platform launching in 2020. Comcast currently trades for US$41.37 per share with a market capitalization of US$188.1 billion.
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