What Wall Street experts are saying about Disney ahead of earnings

Media giant and theme park operator Disney (DIS) is scheduled to report results of its fiscal second quarter before the opening of regular trading on Tuesday May 7, with a conference call scheduled for 8:30 am ET. What to watch:

STREAMING: In Q1, Disney reported results that CEO Robert Iger said “demonstrates we have turned the corner and entered a new era for our company.”

Iger added: “Looking at the renewed strength of all of our businesses this quarter – from Sports, to Entertainment, to Experiences – we believe the stage is now set for significant growth and success, including ample opportunity to increase shareholder returns as our earnings and free cash flow continue to grow.”

With its last quarterly update, Disney reported Disney+ Core paid subscribers of 111.3M, Disney+ Hotstar paid subscribers of 38.3M and total Hulu subscribers of 49.7M as of December 30, 2023. Disney said it expects Disney+ Core subscriber net additions of between 5.5M-6M and “ongoing positive momentum in ARPU” in the second quarter.

In addition, Disney raised its dividend 50% to 45c per share and said it plans to target $3B in share repurchases in fiscal 2024.

Disney also said: “Based on the strength of first quarter results as well as our expectations for the balance of the year, we expect full year fiscal 2024 earnings per share excluding certain items to increase by at least 20% versus 2023, to approximately $4.60. Further, we continue to expect free cash flow generation in fiscal 2024 to total roughly $8B. We continue to expect to reach profitability at our combined streaming businesses in the fourth quarter of fiscal 2024, and are making tremendous progress in this area, with first quarter Entertainment DTC operating losses improving by nearly $300M versus the prior quarter. We believe this business will ultimately be a key earnings growth driver for the company.”

THE MAGIC IS BACK: On day after Disney’s last report, February 8, Needham upgraded Disney to Buy from Hold with a $120 price target based on expectations for “strong” 23% FY24 EPS growth, driven by additional cost savings, direct-to-consumer streaming breakeven by Q4 with “double-digit” margins at maturity and 5.5M-6M new subs from Charter (CHTR) in fiscal Q2. The firm also cited the ESPN Sports joint venture with Fox and Warner, the $1.5B investment in Epic Games, Parks capex devoted to “incremental capacity,” the exclusive Taylor Swift concert rights on Disney+, a 50% higher dividend and greater than $3B of share repurchases in 2024 in contending that “The Magic’s Back.”

On March 25, Barclays upgraded Disney to Overweight from Equal Weight with a price target of $135, up from $95. Disney’s “narrative reset” is likely to be followed by positive estimate revisions, which should further support the stock’s valuation, the analyst told investors. The firm said the “incessant Disney-related news flow” ahead of the proxy vote had dominated investor considerations and this process and announcements, including better than expected free cash flow and earnings guidance for fiscal 2024, had helped investors gain more confidence about Disney’s earnings estimates having bottomed. The firm believes there may still be some sources of “upside narrative surprises” such as ESPN’s streaming partnerships, Barclays added at the time of its note.

DISNEY WINS BOARD FIGHT: On April 3, Disney said “it appears that Disney’s full slate of 12 directors has been elected by a substantial margin over the nominees of Trian and Blackwells at Disney’s 2024 Annual Meeting of Shareholders.” Bob Iger said in response: “I want to thank our shareholders for their trust and confidence in our Board and management. With the distracting proxy contest now behind us, we’re eager to focus 100% of our attention on our most important priorities: growth and value creation for our shareholders and creative excellence for our consumers.”

Trian, meanwhile, stated: “While we are disappointed with the outcome of this proxy contest, Trian greatly appreciates all of the support and dialogue we have had with Disney stakeholders. We are proud of the impact we have had in refocusing this company on value creation and good governance. Since we re-engaged with the company in late 2023, Disney has announced a host of new operating initiatives and capital improvement plans. The Board has been refreshed with two new directors. Over the last six months, Disney’s stock is up approximately 50% and is the Dow Jones Industrial Average’s best performer year-to-date… And, we wish the best for all of the company’s stakeholders, including Disney’s Board and management team. We will be watching the company’s performance and be focusing on its continued success.”

SPORTS STREAMING VENTURE: In February, ESPN, a subsidiary of Disney, Fox (FOXA) and Warner Bros. Discovery (WBD) reported that they have reached an understanding on principal terms to form a new joint venture to build a new platform to house “a compelling streaming sports service.” The formation of the pay service is subject to the negotiation of definitive agreements amongst the parties. The offering, scheduled to launch in the fall of 2024, would be made available directly to consumers via a new app.

Following that news, FuboTV (FUBO) filed an antitrust lawsuit against the trio and their affiliates, alleging that the vertically-integrated media companies have engaged in a years-long campaign to block Fubo’s sports-first streaming business resulting in significant harm to both Fubo and consumers. The complaint alleges that the forthcoming launch of a sports-streaming joint venture “steals Fubo’s playbook and is the latest example of this campaign.”

In March, Pete Distad, who previously worked at Apple (AAPL) and was responsible for the business, operations and global distribution for Video, Sports and Apple TV+, was named CEO of the new sports streaming service joint venture formed by Disney’s ESPN, Fox and Warner, Fox announced. Distad, who most recently served as an executive at Apple for a decade following six years at Hulu, will assume oversight of all aspects of the joint venture, including overall strategy, distribution, marketing, sales and more, Fox stated.

HULU: In late March, Disney added Hulu to Disney+ after beta testing the integration since December 2023. Disney+ subscribers who don’t pay for Hulu can still search for Hulu shows, The Hollywood Reporter’s Alex Weprin noted in a recap of the move.

On May 6, Anirban Sen and Dawn Chmielewski of Reuters reported, citing people familiar with the matter, that Disney and Comcast (CMCSA) are in talks to hire a financial adviser to resolve a dispute over how to value the 33% stake in Hulu that Disney will acquire from Comcast. JPMorgan has valued Hulu for Disney at close to $27.5B, which is the floor valuation for Hulu that the companies had set as part of their 2019 “put-call” agreement, one of the sources said, while Morgan Stanley valued Hulu for Comcast at more than $40B, another source said, according to Reuters.

CONSENSUS: In terms of overall results for the fiscal second quarter, analysts are calling for Disney to report total revenue of $22.12B. The consensus Q1 earnings forecast stands at $1.10 per share, according to Refinitiv. For the June-end quarter, analysts’ consensus currently calls for revenue of $23.31B and for the “House of Mouse” to post a profit of $1.27 per share, according to data from Refinitiv.

SENTIMENT: Check out recent Media Buzz Sentiment on Disney as measured by TipRanks.