What to Look For From DIS

Key points to remember

  • Analysts estimate adjusted EPS at 95 cents versus 80 cents in Q3 2021.
  • Disney+ subscribers are expected to grow year over year, but at the slowest pace in at least seven quarters.
  • Revenue is expected to grow at a solid pace, but slow compared to recent quarters.

The Walt Disney Co. (SAY) business has recovered strongly in recent quarters as the company emerged from the extreme impact of the COVID-19 pandemic on its theme parks and live experiences. And while most of the company’s parks have reopened, business growth is also being fueled by Disney’s popular streaming platforms. Disney+ and Disney-owned Hulu have seen strong growth in subscriptions in recent quarters. But the prospect of ads being sold on the service and other business concerns for the wider streaming industry continue to loom.

Investors will watch how Disney navigates this environment when it reports its results on August 10, 2022 for the third quarter of fiscal 2022. The company’s 2021 fiscal year ended October 2, 2021. Analysts predict that Disney’s adjusted earnings per share (PES) and revenue will both grow at a solid year-over-year (YOY) pace, albeit at a slower pace than in previous quarters.

Investors will also be looking at the key metric for Disney+ subscriptions, which is Disney’s direct-to-consumer video streaming service. The number of subscribers to the service has grown rapidly since its launch in late 2019, but the pace has slowed in recent quarters. Analysts expect this trend to continue as the growth rate slows further.

Disney stock briefly outpaced the broader market in late summer 2021. After peaking in September, however, it mostly fell over the next 10 months. Stocks fell around November’s fiscal 2021 fourth quarter earnings release and briefly rebounded in January and February 2022. However, those gains were modest and quickly faded through the spring. Since bottoming out in July, Disney shares have once again improved slightly. Still, Disney stock provided a one-year total return of -38.3%, well behind the S&P 500’s -6.6% return as of Aug. 8.

Source: Trading View.

Disney revenue history

Disney’s adjusted EPS has rebounded strongly in recent quarters after a period of sustained decline. Adjusted EPS fell every quarter of fiscal 2019 and the first three quarters of fiscal 2020. The company recorded a loss in the fourth quarter of fiscal 2020. But this trend reversed from the second quarter of fiscal 2021. Profits have soared in five consecutive quarters. Yet that pace of growth slowed significantly in the second quarter of fiscal 2022, and adjusted EPS is still below where it was for most of fiscal 2019. Analysts now expect adjusted EPS will increase at an even slower pace for the third quarter of fiscal 2022.

Disney’s revenue performance was somewhat similar to its adjusted EPS history. While revenue grew for most of fiscal 2019 and the first two quarters of fiscal 2020, revenue fell year-over-year for four consecutive quarters beginning in the third quarter of fiscal 2020. This period of Sustained declines wiped out much of the overall revenue growth over the previous two years. Disney’s revenue rebounded from the third quarter of fiscal 2021, when it grew 44.5% year-over-year. But the pace of growth has slowed, with revenue growing 23.3% for the second quarter of fiscal 2022. Analysts expect revenue to grow at a still healthy pace of 23.0% year-on-year , which would mark a slight deceleration in growth on a sequential basis.

Disney Key Stats
Estimate for the third quarter of fiscal 2022 Q3 2021 Q3 2020
Adjusted EPS ($) 0.95 0.80 0.08
Revenue ($B) 20.9 17.0 11.8
Disney+ subscribers (M) 147.5 116.0 57.5

Source: visible alpha

The key metric

As mentioned, investors will also be focusing on Disney+ subscribers. The video streaming service, which offers Disney, Pixar, Marvel, Star Wars and National Geographic branded content in the United States and a number of other countries, first launched in November 2019. Disney+ still only represents a small chunk of Disney’s total revenue, but the service has grown rapidly in the short time it’s been available. At the end of the first quarter of fiscal 2020, the first quarter in which it was offered to customers, Disney+ had 26.5 million subscribers. That number increased nearly fivefold to 137.7 million subscribers at the end of the second quarter of fiscal 2022.

But Disney+ subscriber growth has slowed in recent quarters. It more than tripled year-over-year for the first and second quarters of fiscal 2021 and more than doubled for the third quarter of that year. But subscriber growth slowed to 60.5% year-over-year for the fourth quarter of fiscal 2021 and a relatively modest 32.9% for the second quarter of fiscal 2022. Analysts expect the Growth will slow further to 27.2% for the third quarter of fiscal 2022. Part of this slowdown may be due to broader challenges for the streaming industry as a whole. Netflix Inc. (NFLX), a major rival to Disney+, recorded its first quarterly subscriber losses in many years earlier in 2022, including a loss of nearly one million subscribers in the latest quarterly report. It remains to be seen whether Disney+ will capitalize on an opportunity to gain more subscribers or suffer a similar fate.