Driven by fears over consumer spending weakness and broader macro uncertainties, Walt Disney (DIS) stock has been a massive under-performer so far this year, with shares down more than 44% from their 52-week high. However, there are tons of reasons to expect a move much higher in the next few quarters.
The media conglomerate is set to report fourth quarter fiscal 2022 earnings results after Tuesday’s closing bell. The company’s streaming platform Disney+ has been a key focus area given the downbeat subscriber results the market has witnessed from Netflix (NFLX). However, Netflix’s strong Q3 results has sparked optimism within the streaming landscape, suggesting Disney+ may remain a strong growth opportunity for Disney moving forward. Management has targeted Disney+ global subscriber gains of 230 million and 260 million by the end of 2024.
The market wants to know if these Disney+ growth targets are still attainable. While that subscriber goal would be impressive, if achieved, it will require significant investments, which may impact profits. In the most-recent quarter, the company added 14.4 million Disney+ subscribers, a 31% year-over-year jump and beating expectations for 10 million new subscribers. On Tuesday investors will want additional details about the company’s long-term subscriber growth strategy.
For the three months that ended October, Wall Street expects the Burbank, Calif.-based company to earn 57 cents per share on revenue of $21.62 billion. This compares to the year-ago quarter when earnings came to 33 cents per share on revenue of $16.31 billion. For the full year, earnings are projected to rise 92% year over year to $3.88 per share, while full year revenue of $86.75 billion would rise 46.2% year over year.
The projected full-year revenue growth of 46% underscores the level of devastation the company endured during the pandemic. Meanwhile, revenue growth estimates for quarter has also trended higher over the past three months, suggesting increased optimism not only about the company’s business recovery prospects within its two main business operating segments: Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products.
Meanwhile, given the pent-up demand, the theme parks and resorts segment should also benefit. But as noted, the expected success of Disney’s streaming platform is what’s likely to drive the stock higher in the near to intermediate term. With its family of streaming services, Disney+ (including Disney+ Hotstar), EPSN+, and Hulu, the company has targeted 300 to 350 million paid subscribers by the end of fiscal 2024. The company is well on its way evidenced by the results of the past two quarters.
In the third quarter, Disney’s results included a 26% rise in revenue, which beat expectations by half a billion dollars, while Q3 adjusted EPS of $1.09 were 10 cents better than expected. The revenue total continues to surpass pre-pandemic levels. The Parks, Experiences, and Products segment was a big driver of the earnings beat with segment-level revenues growing 70% year over year, while segment operating income grew more than six-fold.
In terms of streaming, the company added 14.4 million Disney+ subscribers, marking a 31% year-over-year jump, beating subscriber estimates for 10 million. Segment-level revenues rose 11% , while segment-level profits declined 32% year-over-year last fiscal quarter. The company now has 152.1 million Disney+ subscribers, meaning it has already reached 66% of its total goal for 2024. Sustained growth in this segment will be important for Disney stock Tuesday.
Assuming the company feels no negative effects of a slowdown in consumer spending amid rising inflation, Disney on Tuesday is poised for a top and bottom line beat, which can spark a strong rally in the stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
