Disney Earnings to Clear Hulu Acquisition Concerns

The entertainment giant is expected to see earnings dragged by Disney+ as it looks to expand its ownership of Hulu, with questions about what assets it might divest.

Giving Up on Disney+?

It's been an active week for Disney ahead of its earnings release on Wednesday. The company announced an $8.6B deal to take over the rest of Hulu and a new CFO. Both aspects open interesting questions investors will want answers to in the earnings report and subsequent conference call. CEO Bob Iger's comments might be the key to how the market reacts to the news.

First, buying out the rest of the streaming service Hulu as the company's flagship Disney+ keeps haemorrhaging money despite price hikes last month. Iger said he was looking to streamline the offer of combined services in the streaming division, addressing an issue key to the CEO transition that forced Iger back out of retirement. With investors keenly interested in what happens to the streaming segment, that the company is investing more in Hulu than in promoting its own flagship suggests a shift in priorities for the brand. Does this mean Disney will prioritise the more commercially successful Hulu?

Looking Forward, Any Growth Potential?

Disney also brought on a new head for its financials in the form of Hugh Johnston, who formerly worked at Pepsico. What got investor attention is that in that capacity, he also fended off a campaign from activist investor Nelson Peltz, who has been hounding Disney, and could mean that the house of mouse is taking the situation more seriously. This might be another issue that distracts investors from the company's outlook, as the parks division overtakes the investors' darling streaming unit in growth. ESPN is also in the crosshairs after it turned to generate losses as the company tried to make it a stand-alone subscription. The recent announcements on streaming reorganisation suggest that it might be returning to be part of a package deal.

The consensus among analysts is that Disney will report earnings of $0.81, slightly lower than the previous quarter but an improvement over the prior year, as revenues are expected to fall to $21.6B. Aside from the streaming wars, investors are also likely to be focused on the company's continuing cost-cutting measures as the end of the year approaches, when advertising spend typically increases.

The Bottom Seems In

Wall Disney's share price has consolidated between $79 and $86 since September, pending a break outside the sideways market. Zooming out suggests a potential wedge pattern has ended at the swing support at $78.75. Rising past the second trough at $92.5 could open the door to $105 next, and this may be followed by an extension to $126, where the long-term trend will likely shift to bullish. Conversely, losing the regional low instead would increase the chances of further drops, exposing $75 and $70 as round supports.

Source: SpreadEx Walt Disney

Key Takeaways

Analysts expect Disney's earnings to be slightly lower than the previous quarter but better than the year prior. On the plus side, the parks division outperforms the streaming unit, and there are indications that ESPN might return to a package deal. The company recently acquired the remaining stake in Hulu, which has raised questions about its priorities and potential divestment of assets. Investors may focus on cost-cutting measures and advertising spend.