Disney's Battle for Box Office Dominance

A lot of focus shifts to Disney's third fiscal quarter earnings as the company struggles to turn itself around after dwindling interest in its movies hits the bottom line, especially with the recent euphoria around Warner Bro’s Barbie and the potential rebound in the box office.

Revenues Are Good, But What About Profits?

When it reported earnings last quarter, Walt Disney saw revenue increase 13%, but adjusted earnings fell 14%. The main worrying issue was that its media division saw an anaemic growth of just 3% compared to parks, where income jumped 17% from the prior year. While growth in the parks division is positive in the short term, it's understood that demand is driven thanks to the popularity of Disney's IP. People go to Disney parks because they enjoy the movies. Additionally, Disney's foray into streaming continued to weigh on the company as Disney+ continued to lose subscribers.

The results allowed the returning CEO Bob Iger to show he can turn things around. Initially, he was slated to take on the top job for two years, but recently his contract was extended to 2026. The turnaround will take longer than initially expected. On the other hand, the company managed to generate over 100% increase in its free cash flow, an essential element to attract investors by paying out dividends and buybacks. But the company might need the resources as it continues to battle the writer's strike, impacting some of Disney's most popular shows and properties. That could continue to pressure the streaming segment, which is struggling to retain subscribers, let alone gain them.

The Key Financials

Other headwinds the company can address include the weak ad market impacting media companies. There have been some signs among rival media companies that ad spend is starting to recover, which could help boost Disney's bottom line heading into the main ad-spend season.

Walt Disney is expected to see a modest quarterly increase in its bottom line to $1.02 on improved Revenues of $22.5B. Cost rationalisation will likely remain the key focus for investors as the company continues to see margin compression. After two consecutive losses in Disney+ subscribers, the market will likely want to know if the company's growth forecasts are still viable. Additionally, there is likely to be a focus on the ad-supported version of Disney+, an idea borrowed from Netflix which has shown some success for the rival company.

Walt Disney Near Bottom

The stock price of Walt Disney appears to be forming a wedge pattern, pending potential breakdowns to fresh lows under $84. From a technical perspective, the bearish wedge pattern is already complete as prices printed three thoughts and two peaks. However,  without dropping to a new low, the chances of a reversal remain weaker than if it would. One of the targets involves the lower wedge trendline, near the December 2022 low, while the other is calculated using the reverse 161.80% Fibonacci of the first through and first peak, at $82 and shy of the $80 handle.  If bulls reclaim $90, the next major resistance is the second peak at $94.50, and above there, the first one, at $104, back into triple digits.

Source: SpreadEx / Walt Disney

Key Takeaways

Walt Disney’s focus is on the company's struggle to turn itself around after a decline in interest in its movies. While revenues have increased, adjusted earnings fell, particularly in the media division. The popularity of Disney's IP drives demand in the parks division, but streaming on Disney+ continues to be a challenge with subscriber losses. CEO Bob Iger's contract was extended, and the company generated over a 100% increase in free cash flow. Weak ad market conditions and the writer's strike also impact Disney. Investors will be interested in cost rationalisation, bottom-line improvement, and the viability of growth forecasts, as well as the ad-supported version of Disney+.