Disney Q1 preview: Where next for Disney stock?

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Josh Warner
By : ,  Market Analyst

When will Disney release Q1 earnings?

Disney will report first quarter earnings on Wednesday February 9.

 

Disney Q1 earnings preview

Disney shares remain largely in-line with where they traded at the start of 2020, before the pandemic erupted and caused significant disruption for Disney’s theme parks and media productions. With restrictions continuing to ease and governments starting to see light at the end of the tunnel, Disney’s theme parks, cruises and other experience-based operations are recovering and its media division spanning Disney+, ESPN+ and Hulu continues to attract more subscribers.

Wall Street forecasts Disney will report a 28% year-on-year rise in revenue to $20.87 billion in the fourth quarter, with adjusted EPS expected to jump 86% to $0.60 from $0.32.

Revenue

Operating Income

($, millions)

Q1 2021

Q1 2022E

Q1 2021

Q1 2022E

Media & Entertainment

12,899

14,639

1,217

725.8

Parks, Experiences & Products

3,588

6,174

(119)

1,308.7

 

Profit growth in the quarter is expected to come from the recovery in its Parks, Experiences & Products unit, driven by the reopening of its theme parks and boosted by its Walt Disney World 50th Anniversary Celebration that kicked-off in October. Its popular cruise operations are also back up and running after being hit by lengthy closures, although restrictions are expected to remain in place until at least the end of March. That should see the division comfortably report its highest level of revenue since the start of the pandemic and its third consecutive quarter of profit.

Meanwhile, its Media & Entertainment Distribution division is expected to continue growing its topline but report its third consecutive quarter of lower year-on-year profits, dragged down by higher costs as Disney continues to expand its subscription services into new countries (including South Korea, Hong Kong and Taiwan and a big expansion of content in Japan during the quarter) and invest in new content and sports programming. Disney+ is currently live in over 60 countries but that is set to rise to over 160 by the end of its 2023 financial year.

Disney+ is forecast to have added 7 million net subscribers during the last three months of 2021 to end the year with 125.1 million on its books. This figure, along with any outlook for early 2022, will be keenly watched following Netflix’s mixed results last month, when it narrowly missed forecasts by adding 8.3 million subscribers in the last three months of 2021 and disappointed markets by warning it only expects to add 2.5 million in the first quarter of 2022.

The acceleration in subscriber growth for Disney+ this quarter would be welcomed considering figures disappointed markets in the last quarter when it reported 2.1 million net additions and is expected to have been driven by the decision to include it within the larger Hulu+ package, plus the release of new titles behind its world-renowned franchises such as the new Star Wars series The Book of Boba Fett.

CEO Bob Chapek has said delivering strong subscriber growth for Disney+ is a top priority for the business as it seeks to catch up with Netflix, which boasted over 220 million subscribers at the end of 2021. However, Disney itself has said its decision to ramp-up spending on new content is not expected to start feeding through to deliver faster subscriber growth until the second half of 2022. Disney said in the last quarter that it was doubling the amount of original content released from its core brands – Disney, Marvel, Pixar, Star Wars and National Geographic – in 2022 versus 2021, with the bulk to be launched between July and September. The ramp-up will continue beyond this year, with over 340 original titles in various stages of development and to be introduced over ‘the next few years’.

Ultimately, its current goal is to have 230 million to 260 million Disney+ subscribers by the end of its 2024 financial year, over double the current number. Importantly, it expects the Disney+ service to be profitable in that year and be spending between $8 billion to $9 billion in content annually. It has also recognised the success Netflix has had with local and regional content, demonstrated by hits like Squid Game, and has said this will be a particular area where investment will be increased.

ESPN+ is expected to have added 1.7 million net subscribers, while Hulu is set to have added 1.9 million. The average revenue per user is expected to rise to new highs of $4.34 for Disney+ and $5.03 for ESPN+.

(Millions)

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022E

Disney+

94.9

103.6

116

118.1

125.1

ESPN+

12.1

13.8

14.9

17.1

18.8

Hulu

39.4

41.6

42.8

43.8

45.7

 

Where next for DIS stock?

Disney shares have struggled to find higher ground in the new year and have lost over 9% in value since the start of 2022. Sellers managed to push the stock to a 16-month low of $129 last month before enticing buyers back into the market.

The bearish RSI and moving averages, with the 50-day below the 100-day (which in turn is below the 200-day) suggest we could see the stock experience further pressure. That is supported by the emergence of a potential head and shoulders pattern over the past three months. The price would need to sink below that $129 floor in order for the pattern to be confirmed and signal a move lower, potentially toward the $117 low seen back in October 2020.

However, any move above the right shoulder of $144 would negate the head and shoulders. With this in mind, the share price has struggled to remain above the short-term moving average for too long over the past 10 months, making the 50-day sma at $149 – in-line with the 2022-high - the first key level to recapture on the upside in order to be able to target the 100-day sma at $160.

Disney shares struggle to find higher ground in early 2022

 

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