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Will Disney Maintain Its Positive Momentum Next Week?

By Demitri Kalogeropoulos – Nov 3, 2018 at 11:46AM

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Investors have big questions heading into the media titan's earnings report.

Get out your calendars, Disney (DIS -0.75%) fans. The media giant is set to announce quarterly results after the market closes on Thursday, Nov. 8.

Most investors who follow the stock expect Disney to post modest growth on both the top and bottom lines for the summer months. However, there will be much more to follow in this report beyond just those headline numbers. Here's what investors will want to watch in Thursday's announcement.

Growth wins and losses

Disney is on pace to return to sales and profit growth in fiscal 2018 after posting a rare decline last year. However, some parts of its business are performing better than others.

Man and child eat popcorn in a movie theater.

Image source: Getty Images.

The studio segment has been a standout so far, with revenue up 13% in the past nine months and 20% higher in the fiscal third quarter. Recent theatrical wins included Black Panther and Avengers: Infinity War, which have helped ensure that Disney will dominate the box office for a second consecutive year. That's great news for the business since the movie theater is the main launching pad for new franchises that the company can monetize in other operating segments, like its parks and consumer products divisions.

But while the studio segment improves, look for continued struggles on the cable side of the business. Challenges there have led to a disappointing 3% revenue uptick in the broader media division so far this year and an even weaker result when it comes to profits. In fact, operating income is running lower by 6% in Disney's core media business.

The good news: Disney revealed an encouraging slowdown in the rate at which subscribers were leaving its pay-TV ecosystem last quarter. Investors will be watching for evidence that this metric continued stabilizing over the last few months.

Streaming and merger updates

The new ESPN streaming app is Disney's most aggressive move yet to break out of the traditional broadcast television model that has served the business so well over the last few decades. With two full quarters of operations behind it, the company is finally in a position to share hard data on that experiment, including metrics such as subscriber growth, cancellation rates, and hours watched.

While CEO Bob Iger and his team might not disclose many of these numbers, they're likely to update investors on the broader trends since that will inform how the company approaches its even bigger bet on streaming video, scheduled to launch next year.

Disney's acquisition of studio assets from Twenty-First Century Fox will have a more direct impact on its outlook for 2019, though. That purchase should ensure the company stays well ahead of all of the global box office competition, for example.

But surprising hidden costs are always a risk when acquiring a rival, and that's even more likely for a massive $50 billion purchase like this. Thus, investors will want to take Disney's 2019 predictions with a grain of salt since they'll be contingent on the smooth integration of the Fox business.

Assuming no major integration challenges there, the entertainment giant has a bright future it can predict for shareholders next week. That will include a packed calendar for theatrical results, but also healthy gains in its global parks and resorts segment. These successes should give Disney plenty of financial room to be bold as it makes its big shift into bypassing the cable-TV ecosystem and offering content directly to consumers on a subscription basis.

Demitrios Kalogeropoulos owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.

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