Financial Trading Blog
Disney Preview
Disastrous Netflix earnings after which the stock dropped 20% mean Disney earnings are especially interesting given its new focus on streaming via Disney+. Will DIS stock share the same fate as NFLX?
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Disney reports Q4 earnings on Wednesday, February 9th.
The omicron scare started in late November, ahead of the important holiday season for the Parks division. At the same time, subscriber growth is tailing off across the streaming industry.
Disney+
Last quarter, Disney reported fewer than expected subscribers to its streaming services, which is now the largest source of revenues. As a result, the Linear Networks division, which overseas streaming saw a drop in revenue compared to the prior year.
Customer retention has started to become a problem for Disney+. Last month, it was reported that almost half of the new subscribers drawn by major content releases cancelled their subscription within six months. Newer titles have either significantly underperformed their predecessors or have been pulled. Disney will need to respond with stronger content but any commitment to higher spending will impact margins to the detriment of shareholders.
Taking the Mickey
Disney's Parks division accounts for only 29% of the company's revenue but over 40% of the operating income. Despite its expansion into the direct-to-consumer digital space, Parks is still an essential source of profit margin for the firm. As the world moves into a post-covid mindset, Disney has started to see an increase in sales from this division but Omicron potentially caused a hiccup in Q4.
The numbers
The consensus among analysts is for Disney to have a significantly better performance compared to the prior year - but that's because it compares to the depths of covid. A quarter over quarter comparison might end up being more useful for traders to figure out where the company is going.
Disney is expected to report quarterly earnings of $0.58 per share on $21.2B in sales.
Year-over-year performance should be strong thanks to the base effects of the pandemic but quarterly numbers might have been hampered by Omicron. Traders could choose to look past the near term impact of Omicron on legacy businesses like parks and hotels, should the streaming business hold up.
Technical outlook: DIS
Disney entered a bear market in November 2021. Since then, it has fallen over 35% from its peak near $200. The stock formed a bullish hammer reversal on the weekly chart at the 200-week moving average but remains well below its 50-week MA.
Should the stock decline again, the $120 level was resistance for 4 years between 2015 and 2019, and could act as support, while the big $100 level lies beneath. $150-60 is near term resistance.
Source: Spreadex Trading Platform
Key Takeaways
The biggest risk heading into the numbers is that the deceleration in streaming subscriber growth in Q3 carries on into Q4 and the stock succumbs to the same kind of selling pressure that sent Netflix shares tumbling 22% in one day.
One reason to think it might is valuation. Disney trades on a whopping PE ratio of 130. Netflix was trading on a PE of 53 before earnings and is now at 36 post-earnings.
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