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Disney Earnings: A Preview

By Demitri Kalogeropoulos - Jan 30, 2020 at 7:15AM

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Here's a look ahead to the entertainment giant's upcoming earnings report.

Disney (DIS 1.84%) shareholders endured a roller-coaster ride of returns in 2019, but the stock's 32% overall gain ultimately matched the wider market's full-year rally. The entertainment giant faced worries about its acquisition of the Twenty-First Century Fox studio assets and its costly push into direct-to-consumer subscription services. Yet investors chose to focus on the potential growth that these two initiatives might bring over the next few years.

On Tuesday, Feb. 4, shareholders will get important updates on each of these projects, along with fresh data on Disney's operating metrics in its parks and resorts as well as its core media business. Below, we'll dive into a few expected highlights from that report.

A mother and daughter watching TV together.

Image source: Getty Images.

Streaming wins

If you had to explain the recent rally in Disney's stock with just one factor, it would be the successful launch of the Disney+ service. A lot could have gone wrong with a huge release like that, including technical issues like slow streaming or unavailable servers. Disney's direct-to-consumer launch could have been plagued with complaints of sparse content given its price. Or TV streamers might have taken a pass and focused instead on the subscriptions they already pay for such services as Netflix and Amazon Prime.

But all indications are that the launch went well, with over 10 million initial subscriptions. Disney's management will update that membership figure on Tuesday, including early readings on the percentage of cancellations, or churn. There are lots of positives associated with continued gains for Disney+. On top of playing in a new global growth channel, Disney could have a valuable platform for direct releases of its own content, for example. Thus, look for CEO Bob Iger and his team to dedicate much of their comments to the streaming strategy of this consumer discretionary company.

Parks and resorts

Disney has reported falling attendance at a few key theme parks, including Disneyland in California, in each of the last two quarters. The good news is that these declines have been offset by higher prices and increased guest spending in the resorts as visitors shell out more for Frozen- and Toy Story-branded merchandise.

Still, investors will want to see firming attendance volume in the 2020 fiscal year, especially now that the major Star Wars-themed expansions are coming to Disney's U.S. resorts. Persistent slumps here, on the other hand, might pressure the stock this year. Shareholders will also be listening for updates this week on Disney's Shanghai resort, which also reported higher profits amid a slight decline in visits. 

The pipeline

Executives looking out to 2020 will have the benefit of a packed theatrical release schedule that should ensure that the company dominates the global box office for a third straight year. Disney's content plans might be just as aggressive in the online front as it aims to fortify its early market share wins.

One interesting dynamic to watch will be how quickly it arrives at its first decision to raise its streaming prices. It will be difficult to profit much from the initial launch fee, especially as Disney puts more fresh content exclusively on its own platform. Besides winning a big installed base, the major test for that service will ultimately be whether it can demonstrate through rising prices that it's providing a good value to its streaming fans.

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