Why the Disney share price could take starring role post-earnings

The Walt Disney [DIS] share price had been up by 35.4% earlier this year, from $115.27 at the close on 6 March 2020 to $201.91 at the close on 8 March 2021.

However, the Walt Disney share price has since fallen 2.2% in the year-to-date to $177.13 at the close on 6 August. The fall is despite rising streaming demand for the Tokyo Olympics 2020, a reopening plan for its hotels and theme parks gathering pace and market talk of potential acquisitions, including BT Sport and bidding for Premier League broadcasting rights.

While COVID-19 remains a serious headwind to its movie business if consumers continue to be reluctant to return to indoor entertainment, will investors see a shift in demand in its upcoming third-quarter earnings, due 12 August?

 

Disney share price spikes on Q1 and Q2 earnings

The group experienced serious disruption from the COVID-19 pandemic, including being forced to shut or in some cases significantly reduce capacity at its Disney theme parks and guided tours, as well as delaying or cancelling movie releases and studio production.

The impact of COVID-19 was seen in its full-year figures for 2020, where earnings per share (EPS) dropped to a loss of $1.57 from income of $6.26 in 2019. Revenues also fell 6% year-on-year to $65.3bn.

However, the Disney share price kept rising as investors focused on the growth of its streaming services Disney+, ESPN+ and Hulu. In the fourth quarter, direct-to-consumer and international revenues jumped 41% to $4.9bn as people looking for entertainment at home during lockdowns switched to new programming and sports, such as the Ultimate Fighting Championship. For the full year, subscribers reached close to 74 million.

  

The Walt Disney share price rose 0.6% and 0.2%, respectively, after reporting its first and second-quarter results on 11 February and 13 May. The company had exceeded subscriber growth expectations in the former quarter but missed in the second-quarter results as fears over new coronavirus variants and a delay in its movie release schedule hit investor sentiment.

Subscribers grew by 103.6 million during the second quarter, missing analysts’ expectations of 109 million with the lifting of lockdown restrictions likely having hit numbers. Revenues of $15.6bn were down 13% year-on-year as theme park numbers continued to slump, missing forecasts of $15.87bn.

“We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fuelling long-term growth for the company,” Bob Chapek, CEO of Disney, said in its second-quarter earnings. “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 unrivalled portfolio of multiyear sports rights deals.”

“We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fuelling long-term growth for the company” - Bob Chapek, CEO of Disney

 

Signs of a recovery lift analysts’ Q3 earnings forecasts

According to Zacks, Disney is expected to post quarterly earnings of $0.57 per share in the third quarter, marking a year-over-year growth of 612.5%. Revenues are expected to be $16.82bn, up 42.8% from the year-ago quarter.

Analysts will be keen to hear more about streaming subscriber numbers and whether the reopening of society is impacting demand. In the fourth quarter of 2020, it posted 73 million Disney+ subscribers and continued to see growth in the two subsequent quarters.

However, a slowdown in subscribers could hurt the Walt Disney share price. Investors will be keen to hear about new releases such as movie Cruella, sports rights, and international expansion. They will also be eager to see how revenues in its theme park and experiences division amidst the new Delta variant.

  

At present analysts are bullish. According to MarketScreener, the stock has a consensus buy rating and an average target price of $206.01.

Analysts at Trefis believe the Walt Disney share price is undervalued. “Along with continued strong demand for streaming, with gradual lifting of lockdowns and a successful vaccine rollout, Disney’s traditional businesses like cable and theme parks are also expected to see recovery in the coming quarters,” it states.

“Signs of recovery of its business are seen with Disney returning to US multiplexes in March 2021 after almost a break of one year. Also, Disney reopened its original Disneyland and its adjacent Disney’s California Adventure sister park in the last week of April 2021.”

It also plays down fears over subscriber numbers given that it took rival Netflix [NFLX] a decade to hit 200 million. Disney+ gained 103 million subscribers in just 18 months, Trefis said, further strengthening its $205 target price.