Disney Soars 4% After-Hours On Strong Subscriber Growth

Shares in Disney (DIS) soared 4% in Tuesday’s after-hours trading after the company announced its fiscal third quarter earning results.

Encouragingly, Disney+ subscribers hit 57.75M- a significant leap from the 33.5M recorded in the previous quarter (but slightly under the Street’s expected 59.4M) while ESPN Plus subscribers came in at 8.5M vs 7.9M in FQ2.

Meanwhile Q3 Non-GAAP EPS of $0.08 beat Street estimates by $0.75, although GAAP EPS of -$2.61 missed consensus by $1.63. Revenue of $11.78B fell marginally short of Street expectations by $580M- and also represented a 41.8% year-over-year decline.

“Despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses,” said Bob Chapek, Disney CEO.

“The global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions — a significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company” he added.

The earnings report also highlighted that the most significant impact of Covid-19 for Disney was, unsurprisingly, at the Parks, Experiences and Products segment as most of the theme parks and resorts were closed for the entire quarter and its cruise ship sailings were suspended.

Indeed, Parks, Experiences and Products reported revenue of $983M (down 85%) while Media Networks was at $6.56B (down 2%), and Studio Entertainment at $1.74B (down 55%). However Direct-to-Consumer and International did report positive growth at $3.97B (up 2%).

In terms of operating income, Media Networks delivered $3.15B (up 48%) while Parks, Experiences and Products recorded a substantial loss of $1.96B, with Studio Entertainment falling 16% to $668M and Direct-to-Consumer and International also with a loss of $706M.

Meanwhile on the post-earnings call Chapek revealed that its highly-anticipated Mulan film will be released straight to Disney+ on a premier access basis beginning September 4. The price will be $29.99 in the U.S. and will vary slightly in other countries. Simultaneously, the film will be released in cinemas in markets where there are no launch plans for Disney+ and where theaters are still open.

“We see this as an opportunity to bring this incredible film to a broad audience currently unable to go to movie theaters, while also further enhancing the value and attractiveness of a Disney+ subscription with this great content” the CEO stated.

Shares in Disney are down 19% year-to-date, and analysts have a cautious Hold consensus on the stock. That’s alongside a $120 average analyst price target for upside of just 3%.

“Our HOLD rating on DIS is based on our belief that consensus estimates are too high owing to COVID-19 disruption of many of its consumer-facing businesses, including theme parks, ESPN and film releases” explains Needham’s Laura Martin. She worries that theme park attendance may take years to return to pre-COVID levels, plus DIS’s cruise ships may not earn a positive ROIC (return on invested capital) for longer.

“Because DIS’s EPS are under pressure owing to COVID-19, investments in streaming, and periodic losses at the FOXA content assets, we believe DIS’s valuation multiple and earnings are at risk of downward revisions throughout calendar 2020” the analyst concludes. (See Disney stock analysis on TipRanks).

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