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Disney’s (DIS) theme parks and resorts continue to power ahead while losses from its streaming services have peaked.
 

Key takeaways

• Disney will report under its new organizational structure this quarter
• Strong attendance levels and price rises at theme parks and resorts will drive revenue growth higher
• Earnings to fall for the third consecutive quarter thanks to rising costs, streaming losses, and lower profitability from its TV networks
• Markets believe this will be the trough and that profits will return to growth in the third quarter
• Streaming losses to narrow, fueling hopes they have peaked
• Disney+, ESPN+, and Hulu should all see subscriber numbers rise following some tough quarters
• Disney stock could find it more difficult to move above recent peaks without a catalyst
   

When will Disney report Q2 earnings?

Disney is scheduled to publish its second-quarter earnings after US markets close on Wednesday, May 10. A live audio webcast is scheduled on the same day at 1630 ET (1330 PT).
 

Disney Q2 earnings consensus

Disney is forecast to report a 13% year-on-year rise in revenue in the second quarter to $21.8 billion while adjusted EPS is expected to fall 14.5% from the year before to $0.92, according to consensus numbers from Bloomberg.
 

Disney Q2 earnings preview

Disney’s theme parks and resorts continue to power ahead thanks to healthy attendance levels in the face of price increases. This is expected to see both sales and profits experience double-digit growth, although at the slowest rate for around a year. Revenue is forecast to rise 15% to $7.7 billion and operating profits are expected to jump 22% to $2.1 billion.

Its media and entertainment arm is expected to report its third consecutive quarter of faster topline growth, albeit at just 4% to $14.2 billion, but profits remain under pressure and are forecast to plunge by 50% from last year to $971 million thanks to its loss-making streaming arm and because of reduced profitability of its TV networks due to higher college football rights at ESPN.

Overall operating profit is seen falling 14% from last year to $3.2 billion. Adjusted EPS will follow operating profits lower as costs continue to rise, with total operating expenses forecast to rise over 12% from the year before to $19.8 billion and the amount of interest due on its debt to jump 25% thanks to higher rates and weigh on the bottom line. This is expected to be the third consecutive quarter of lower EPS – although markets believe this will start to grow again in the current quarter and accelerate markedly in the final three months of the financial year.

Importantly, Disney has restructured its divisions since CEO Bob Iger returned last November. Disney is now organized under three divisions. Its theme parks, experiences, and product division will remain the same but its media and entertainment arm has been broken up and is now split into Disney Entertainment and an ESPN unit that also homes its TV network.

Iger has promised to undertake a ‘significant transformation’ of Disney by cutting costs and reinstalling control of the creatives within the business. That provides an opportunity for Disney to impress and leaves the door open to a potential beat this quarter, although a soft reading or a miss would trigger concerns that the turnaround is progressing slower than hoped.

Disney+ is expected to have added 1.3 million new subscribers to end the period with 163.1 million of them on its books. Disney+ suffered its first sequential fall in subscribers since being launched when it reported results for the last quarter, so returning to growth will be key to sentiment.

ESPN+ and Hulu are also expected to grow subscriber numbers following some tough quarters recently, which have seen overall subscriber numbers across all three services stall. Watch for any commentary on ESPN+ and Hulu, the latter of which is jointly owned with Comcast, as both could form part of any future radical shake-up under CEO Bob Iger’s strategic plan.

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(Source: In millions, from company reports and Bloomberg)

With that in mind, a lot of attention will be paid to how far its streaming services are down the path to profitability as pressure builds on the loss-making businesses – a trend that will only heighten if subscriber numbers struggle to grow going forward. The Direct-to-Consumer unit that homes these activities is forecast to report an operating loss of $850.3 million in the period, which would be welcome considering losses have exceeded $1 billion over the last three quarters. That should be aided by the growth in subscriber numbers twinned with price increases and a sharper focus on costs.

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(Source: Bloomberg)
 

Where next for Disney stock?

Disney shares closed at their highest level in seven weeks yesterday, ending the day just under $103.

We could see the stock continue to climb toward the falling trendline that has marked the peaks and highs over the past year if it can keep up the momentum. That would put it on a path to around $113 before that resistance comes into play. In the meantime, it can look to target a return above $106, in-line with the peak we saw last November.

Notably, the 32 brokers that cover Disney see more potential upside considering their average target price currently sits at just under $126, roughly aligned with the peak we saw last August.

There is also a rising trendline that has provided some support throughout 2023. We could see it slip toward $98 if it comes under renewed pressure, broadly in line with the 50-day moving average that has recently sunk back below the longer 100-day moving average.

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Where next for the Dow Jones Industrial Average?

Disney makes up almost 2% of the Dow Jones Industrial Average, so let’s check in on how the index is doing.

The index has lost ground since testing 34,250 at the start of May, in line with the ceiling that held firm throughout the first six weeks of the year. This is the main upside target, although markets would welcome a return above 34,000 in the meantime.

However, the falling trendline capturing the peaks over the past year could make it harder for the index to break this target.

A move below last week’s trough of 33,100 would fuel bets that the index could slide further. The 100-day moving average has struggled to provide support, with the 50-day having to act as a safety net last week. A break below 33,100 could therefore open the door to a steeper decline toward the 2023-lows of 31,760 if the 200-day moving average fails to keep the stock up.

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