Expect More Bad News for Disney at Today’s Q3 Earnings Webcast

Disney's Q3 earnings report will be unveiled after market close Tuesday.

Disney Earnings Report Stock analysis
Can Disney weather the storm? Disney

Last quarter, the immense success and rapid growth of Disney+, as well as The Walt Disney (DIS) Company’s other direct-to-consumer products, emerged as the lone bright spot amid an unprecedented economic downturn for what was the most dominant entertainment media conglomerate on the planet. Now, with the coronavirus raging on and even with all four Walt Disney World theme parks and Disney Springs now open, recent history is set to repeat itself.

Ahead of Disney’s Q3 earnings webcast today after market close, don’t expect a significant rebound for the Mouse House just yet despite CEO Bob Chapek’s positive spin. Disney’s parks and resorts, which account for as much as 40% of the company’s annual revenue, are operating at limited capacity due to COVID-19. The film division hasn’t released a new theatrical movie since March’s Onward while movies rerouted to Disney+, such as Artemis Fowl, were largely panned. All the while, traditional media networks continue to collapse thanks to a lack of advertising—no live sports has hurt ESPN—and the continued exodus of cord cutters.

“The House of Mouse is in the middle of a nasty downturn,” Haris Anwar, senior analyst at Investing.com, told Observer. “Its core business, which thrives on shared group experiences, is suffering after the global spread of COVID-19 forced the closure of its theme parks, resorts, movie theaters and cruises worldwide.”

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The key markers to look for in today’s report will be trends in advertising, costs controls, comments on theme parks, plans for ESPN+ to do more and major sports rights, and of course, Disney+. We also hope to hear more about what Chapek is thinking long-term and how that could impact the stock, which is trading at $116.35 as of this writing.

Last quarter, Disney reported a $1.4 billion shortfall in its operating income, including a $1 billion hit in its parks division. According to Yahoo Finance, the Zacks Consensus Estimate for Parks, Experiences & Consumer Products revenues is currently pegged at $899 million, significantly down from $6.58 billion reported in the year-ago quarter. Ad sales, studio entertainment, parks and resorts and media networks are all expected to reflect shrinking revenues. With uncertainty still surrounding blockbusters such as Mulan and Black Widow, there’s no concrete expectation as to when the downward slide can begin to recover.

“One bright spot, however, in the upcoming earnings report could be subscriber numbers on its newly launched streaming service, Disney+ which is benefiting from the stay-at-home environment,” Anwar said. 

As of May 4, Disney+ boasted 54.5 million subscribers. Since then, the service has continued to rollout in select overseas regions, including Japan, which should help boost overall subscriber numbers and bottom line DTC revenue. Flagship series The Mandalorian has consistently been one of the most in-demand digital originals throughout the pandemic while Disney+’s movie library houses some underrated gems. The company will need to tout some big growth stats in order to distract the public from its sinking business elsewhere.

“Shares of the entertainment giant have fallen 19% this year, closing at $116.94 on Friday,” Anwar said. “The stock is gradually recovering from its March dip, fueled by hopes of a quick rebound for Disney’s business once the pandemic is contained.”

Expect More Bad News for Disney at Today’s Q3 Earnings Webcast