It's time for the big cheese of media stocks to step up this earnings season. Walt Disney (DIS -0.06%) will roll back the curtain on its fiscal 2023 first-quarter results after the market close on Wednesday. With the shares rallying -- they're up by 32% since bottoming out over the holidays -- a lot is riding on the fresh financials.
There are plenty of moving parts at Disney, and it always draws a lot of attention as a media industry bellwether, but this report will be even more special than usual. Bob Iger returned as CEO in late November, and this will be the first earnings call that he's presided over since early 2020.
Iger won't be held accountable for the actual results. He came back to the top job more than halfway through the fiscal quarter, so he's pitching for the save, not the win. It will be what he says -- and any clarity he offers as to his initial successes in addressing Disney's pressure points -- that will drive market sentiment. Disney stock will be on the move at the opening bell on Thursday, and the direction it takes will be dictated by what takes place during Wednesday afternoon's earnings call.
Image source: Disney.
Stopping a runaway train
Wall Street pros have taken a cautious view ahead of this week's report. Their consensus forecast is for revenue to climb by a modest 7% to $23.36 billion. Their average profit target is currently $0.79 a share, down 25% year over year. Analysts had been projecting net income of $1.21 a share for the period three months ago, but after Disney's ugly fiscal fourth-quarter report in November, they dialed back their forecasts for this one.
The widening losses at Disney+ -- the streaming services segment booked a $1.5 billion operating loss in fiscal Q4 -- forced Wall Street to pare its near-term profit expectations. The sobering report in November was also the catalyst that led Disney's board to summon Iger back to the helm.
A mere 7% increase in revenue might seem low at first glance. The company has plenty of key components that are seemingly growing a lot faster than that. Disney+ is losing money, but its subscriber base is growing at a brisk pace. Theme parks have been a bright spot for Disney lately, and rival Comcast (CMCSA 1.46%) -- with similarly located gated attractions in Central Florida and Southern California -- clocked in with a 12% increase in revenue on widening margins for the same three-month period. Also during the quarter, the company raised prices for Disney+, and at Disney World and Disneyland, which should have amplified their top-line growth.
Even on the silver screen, where Disney's post-pandemic recovery has been less consistent, the holiday quarter was a success. Black Panther: Wakanda Forever, which debuted in November, and Avatar: The Way of Water, which arrived in December, were blockbusters. They combined to hold the top-grossing domestic movie slot for 12 consecutive weeks before that run was snapped this past weekend. Revenue recognition for hit movies has a long tail, but at least we shouldn't be hearing about Disney having to take an accounting hit for the big-budget Avatar sequel as it closes in on $2.2 billion worldwide at the box office.
The weakness in the report that could drag Disney down to single-digit percentage revenue growth will come from its ad-supported businesses. Disney's legacy networks have already been dealing with the impact of the cord-cutting trend. Now, they face the further headwind of advertisers scaling back their marketing budgets.
Wall Street will forgive a mixed report -- despite the stock's strong rally -- if Iger offers concrete signs of improvement. Is he making headway at Disney+? Is he considering unloading ESPN or Hulu? Can Disney's theme parks keep rolling if the economy sours? Can the iconic animation studio start cranking out hits again?
It has been three years since Iger presided over a Disney earnings call. This week's presentation needs to be special.
