Disney Delivers Mixed Results In Second Quarter; Street Says Buy

The Walt Disney Company (DIS) reported mixed second-quarter results as revenues declined year-on-year while net income increased. The media and entertainment giant posted revenues of $15.6 billion, down 13% year-on-year versus analysts’ expectations of $15.86 billion. Disney reported adjusted earnings of $0.79 per share, up 32% year-on-year, blowing past consensus estimates of $0.26 per share.

The Walt Disney Company’s CEO, Bob Chapek said, “We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fueling long-term growth for the Company. This is clearly reflected in the reopening of our theme parks and resorts, increased production at our studios, the continued success of our streaming services, and the expansion of our unrivaled portfolio of multiyear sports rights deals for ESPN and ESPN+.”

The company’s direct-to-consumer services including Disney+, ESPN+, and Hulu experienced a surge in paid subscribers in Q2 with 103.6 million, 13.8 million, and 41.6 million subscribers, respectively. However, the average monthly revenue per paid subscriber was down 29% year-on-year for Disney+ in Q2 to $3.99.

Disney’s theme parks business revenues plunged 44% year-on-year to $3.2 billion, while this segment suffered a loss of $406 million in the second quarter versus a profit of $756 million in the same quarter last year. This was a result of a majority of its theme parks being closed around the world or operating at a reduced capacity due to the pandemic while sailings of cruise ships were suspended.

DIS stated that as operations at its theme park and cruise ships resume, and as film and production shoots including live sports events restart, the company expects to incur additional costs of $1 billion in FY21 to “address government regulations and implement safety measures for our employees, talent and guests”. (See The Walt Disney Company stock analysis on TipRanks)

Prior to its earnings, Credit Suisse analyst Douglas Mitchelson reiterated a Buy and a price target of $218 on the stock. Mitchelson noted that investors are expecting that subscribers to the company’s Disney+ streaming service are likely to moderate to a level of 104 million.

The analyst added, “Overall, we expect in line F2Q results, but a favorable forward outlook, including: (a) pent up Parks/Cruise Ship demand and a structurally improved cost structure suggesting a return to Parks profitability in F3Q and returning to FY19’s EBIT level in FY22; (b) ARPU increases driving greater streaming revenue momentum than forecast; and (c) soft U.S. advertising in F2Q rebounding with the economy driving F3Q+. Despite shares consolidating this year, we remain bullish as earnings power should be clarified.”

Overall, consensus among analysts is a Strong Buy based on 14 Buys and 2 Holds. The average analyst price target of $215.31 indicates upside potential of around 20.7% from current levels.

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