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Disney Earnings Preview: What to Watch

By Demitri Kalogeropoulos - May 6, 2018 at 10:35AM

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Investors have big questions heading into Tuesday's earnings report.

Investors love the fact that Disney's (DIS 1.84%) diverse media empire tends to deliver predictable earnings growth. Yet those profit gains have slowed recently as people ditch the broadcast television ecosystem in favor of internet-delivered content.

The House of Mouse has many other important growth avenues, including its booming parks and resorts business and its dominant grip on the global box office. But those negative TV trends, and Disney's aggressive moves to respond to them, will draw the most investor attention when the company releases its earnings report on May 8.

Let's look at what shareholders can expect in that announcement.

Strategic updates

There's always plenty going on with Disney in a given quarter, but this upcoming report will include a higher dose of market-moving news than usual. For one thing, the fiscal second quarter included the launch of the company's ESPN Plus app.

Priced aggressively at $4.99 per month, this product is the media giant's most aggressive attempt yet to break out of the linear TV broadcasting model and monetize its content through a direct relationship with consumers.

A man watches sports on his couch.

Image source: Getty Images.

Management is hoping the app helps offset some of the painful subscriber losses at ESPN over the past few years. But its success, or stumbles, could have an even bigger impact on Disney's plans to launch its broader streaming service in 2019.

That Netflix-styled offering will carry a wide variety of valuable TV shows and films, but it's an open question as to whether Disney can make it compelling for consumers and profitable for its business. Strong demand for its ESPN Plus app would suggest that this strategy could work.

Meanwhile, CEO Bob Iger and his executive team should update investors on the proposed merger with Twenty-First Century Fox (FOX). In February, they said they were as optimistic as ever about acquiring assets like Fox's diverse geographic footprint and its significant filmmaking abilities. But a lot can go wrong with a $50 billion merger that might result in things like expensive writedowns or scaled-back growth expectations. On the other hand, Disney has a strong track record on its smaller, but still significant, buyouts such as Pixar and Marvel.

Other growth lines

Disney is likely to have good news to report for both the theater and parks segments. Its Black Panther movie release dominated the box office at the start of the year, and the company recently extended its winning streak with a strong outing for Avengers: Infinity War.

Outside a Disney theme park.

Image source: Disney.

The parks and resorts business has also become a larger contributor to overall results as the media business stumbles. In fact, it was responsible for 26% of earnings in fiscal 2017, up from roughly 20% in each of the prior two years. Investors have good reasons to expect healthy growth to continue in 2018 as Disney's Shanghai theme park concludes its second year of operation. Rising ticket prices, longer stays, and increased spending across its theme parks and cruise ships, meanwhile, might help the segment post strong growth again.

That success should keep overall results rising even as the company starts a risky pivot toward a future where home entertainment is delivered through the internet and not via the broadcast TV ecosystem that helped Disney build its media empire.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$96.14 (1.84%) $1.74
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOX

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