Case Study on Disney (DIS) with Nobias technology
The Walt Disney Company (DIS) reported earnings this week, causing its shares to rally. Coming into its Q3 earnings report, Disney shares were down approximately 28.4%. Throughout 2022 Disney shares struggled alongside other major players in the media/entertainment space due to results that pointed towards slowing subscriber growth and lower consumer spending. However, DIS’s Q3 report bucked those trends.
Disney beat Wall Street consensus estimates on both the top and bottom lines, causing its shares to rally by approximately 7.5% since its earnings report was published. During the last week alone, Disney shares are up by 10.9%. During the last month, Disney shares are up by more than 28%. And yet, even after this strong rally, the credible analysts that Nobias tracks believe that Disney shares have more room to run to the upside.
When reporting Q3 results, Disney stated, “Revenues for the quarter and nine months grew 26% and 28%, respectively.” Disney’s non-GAAP earnings-per-share came in at $1.09 which beat consensus analyst estimates by $0.10/share and represented 36% year-over-year growth.
DIS Aug 2022
During the Q3 report, Bob Chapek, Disney’s Chief Executive Officer, said, “We had an excellent quarter, with our world-class creative and business teams powering outstanding performance at our domestic theme parks, big increases in live-sports viewership, and significant subscriber growth at our streaming services. With 14.4 million Disney+ subscribers added in the fiscal third quarter, we now have 221 million total subscriptions across our streaming offerings. We continue to transform entertainment as we near our second century, with compelling new storytelling across our many platforms and unique immersive physical experiences that exceed guest expectations, all of which are reflected in our strong operating results this quarter.”
Disney broke down its operating segment results, highlighting $14.11 billion in sales from its “Disney Media and Entertainment Distribution” segment, up 11% on a y/y basis and $7.39 billion in sales from its “Disney Parks, Experiences and Products” segment, up 70% on a y/y basis.
Howard Smith, a Nobias 4-star rated author, covered Disney’s post-earnings rally in a piece at Nasdaq.com titled, “Why Disney Shares Popped This Week”. Smith wrote, “Walt Disney (NYSE: DIS) reported its fiscal third-quarter earnings this week, and investors were pleasantly surprised by several items of note.”
Smith highlighted the strength of Disney’s Disney+ streaming service, stating, “Many investors were more focused on the streaming services, especially after some other providers like Netflix have seen growth declining. But Disney added more than 14 million subscribers just for its Disney+ offering since the previous quarter. That brings Disney's total paid subscribers to over 221 million including ESPN+ and Hulu services. That's now more than Netflix reported as of June 30.” He continued, “Disney still reported a loss from its streaming segment, but that wasn't unexpected. The company estimates it will turn profitable by late 2024.”
Smith also cited Disney’s Theme Park segment performance as a bullish catalyst for shares, writing, “The company's theme park segment saw revenue soar 70% year over year in its third quarter.” Shanthi Rexaline, a Nobias 4-star rated author, also published a bullish post-earnings piece on Disney.
Rexaline titled her Business Insider piece, “This Stock Is 'Only Asset We Want To Own' In Media, Analyst Says While Forecasting 40% Return For A Juggernaut”. In her report, Rexaline highlighted a recent opinion on DIS shares provided by Brandon Nispel an analyst from KeyBanc, who “maintained an Overweight rating on Disney shares and increased the price target from $131 to $154, suggesting about 37% upside from the current level.”
Like Smith, Rexaline noted the strength of Disney+ subscriber growth. Rexaline also pointed out the pricing power of the service as a bull catalyst for shares. Citing Nispel’s report, she wrote, “The $3 per month price increase for the ad-free Disney+ subscription was higher than the $1 per month increase the company announced last year, Nispel said. An ad-supported Disney+ tier, priced at $7.99 per month, will launch on Dec. 8, the analyst noted.”
During Q3 2022, Disney’s average revenue per user (ARPU) on its “Domestic Disney+” subscribers (hailing from the U.S. and Canada” was $6.27. This figure was down 5% on a y/y basis, compared to the $6.62 ARPU that Disney generated on Domestic Disney+ subscribers during the third quarter of 2021.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Disney’s upcoming price hikes should increase this figure drastically moving forward and this provides the company with a clear path towards profitability in the streaming space. During Disney’s Q3 conference call its Chief Financial Office, Christine McCarthy, stated, “As we sit here today, we remain confident that Disney+ will achieve profitability in fiscal 2024 and look forward to several upcoming catalysts including reaching a steady state of tentpole original content releases, delivery of premium general entertainment and international local originals and the upcoming launch of our ad-supported tier alongside the new pricing structure announced earlier today.”
According to Rexaline, the Keybanc analyst stated, “We continue to see DIS as the only asset we want to own in Media given the platform of DTC products, relatively strong linear brands, and ability to tie content and experiences together with Parks.”
The credible authors and analysts that the Nobias algorithm tracks appear to agree with Nispel’s bullish sentiment. 57% of recent articles published on Disney by the credible authors that Nobias tracks have expressed a “Bullish” bias. 80% of the credible analysts that Nobias tracks who follow Disney shares believe that the stock will increase in value moving forward. Right now, the average price target being applied to Disney by those credible analysts is $135.75. Today, Disney trades for $120.43. Therefore, that average analyst price target implies upside potential of 12.7%.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long DIS and NFLX. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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