What Wall Street experts are saying about Disney ahead of earnings

Media giant and theme park operator Disney (DIS) is scheduled to report results of its fiscal fourth quarter after the market close on Wednesday, November 8, with a conference call scheduled for 4:30 pm ET. What to watch:

STREAMING: In August, Disney reported results that CEO Robert Iger said were “reflective of what we’ve accomplished through the unprecedented transformation we’re undertaking at Disney to restructure the company, improve efficiencies, and restore creativity to the center of our business.”

With its last quarterly update, Disney reported 146.1M paid subscribers for its Disney+ streaming service as of the end of Q3, including Disney+ Core paid subscribers of 105.7M and Disney+ Hotstar paid subscribers of 40.4M as July 1. The company also reported ESPN+ subscribers of 25.2M as of July 1 and total Hulu subscribers of 48.3M as of July 1.

CHARTER FIGHT AND SETTLEMENT: On September 1, Charter Communications (CHTR) provided an update on its contract negotiation dispute with Disney, stating at the time: “We respect the quality video products that The Walt Disney Company produces as well as the experience of its management team. But the current video ecosystem is broken, and we know there is a better path that will deliver video products with the choice consumers want… For more than a decade, executives and analysts have acknowledged that the path of linear video is unsustainable, and the business model must evolve… The Walt Disney Company and Charter have the opportunity to work together on transforming the industry for the long-term benefit of both companies and their customers. Without them, we need to pivot to other models to drive value for our connectivity relationships. We are either moving forward together with a collaborative business model, or we’re moving on.”

On September 11, Disney and Charter announced a multiyear distribution agreement and as part of the deal, the majority of Disney’s networks and stations were immediately restored to Spectrum’s video customers. In a joint statement, the CEOs of the two companies said: “Our collective goal has always been to build an innovative model for the future. This deal recognizes both the continued value of linear television and the growing popularity of streaming services while addressing the evolving needs of our consumers. We also want to thank our mutual customers for their patience this past week and are pleased that Spectrum viewers once again have access to Disney’s high-quality sports, news and entertainment programming, in time for Monday Night Football.”

As part of the agreement, Charter’s customers who pay for the cable company’s premium Spectrum TV Plus package, which includes regional sports networks, will get the ESPN+ streaming service at no added cost, Bloomberg’s Scott Moritz reported, citing people familiar with further details of the deal. Disney won’t receive a fee for those additional streaming subscribers, the report stated.

After Disney and Charter announced their “transformative, multi-year distribution agreement” that ended a blackout and restored the majority of Disney’s programming to Charter’s roughly 15M subscribers, Guggenheim analyst Michael Morris noted that Charter will no longer carry eight networks that the firm estimate combined to represent about 11% of Disney’s affiliate revenue per subscriber fees. The firm believes that the deal reflects a trade-off from linear economics, but “represents an overall positive result across Disney’s total company economics.” Guggenheim keeps a Buy rating on Disney shares.

HULU, ESPN AND ABC: On November 1, Disney announced that it will acquire the 33% stake in Hulu held by Comcast Corp.’s (CMCSA) NBC Universal, following Comcast’s November 1 exercise of its right under the put/call arrangement between the two companies. Under the terms of the put/call arrangement, by December 1, Disney expects it will pay NBCU approximately $8.61B, representing NBCU’s percentage of the $27.5B guaranteed floor value for Hulu that was set when the companies entered into their agreement in 2019 minus the anticipated outstanding capital call contributions payable by NBCU to Disney. “While the timing of the appraisal process is uncertain, we anticipate it should be completed during the 2024 calendar year,” Disney added.

On September 14, Bloomberg’s Christopher Palmeri and Thomas Buckley reported, citing a person familiar with the discussions, that Disney has held exploratory discussions over selling its ABC network and TV stations to Nexstar Media (NXST). The discussions are preliminary and have not involved a particular valuation, the authors note. Nexstar would only be interested in a deal for ABC at the right price, the authors say.

Afterward, Disney issued the following statement in response to media reports regarding its linear businesses: “While we are open to considering a variety of strategic options for our linear businesses, at this time The Walt Disney Company has made no decision with respect to the divestiture of ABC or any other property and any report to that effect is unfounded.”

In two separate reports in August, The Information’s Sahil Patel reported that Verizon (VZ) had spoken with Disney about possibly partnering on a new ESPN streaming service and that Amazon (AMZN) also had early discussions with Disney about being part of the streaming version of ESPN the company is working on, citing people familiar with the matter. The e-commerce giant could offer the service through one of its streaming platforms, helping to expand its distribution, while potentially also acquiring a minority interest in ESPN, the author added in the second of the reports.

NEW REPORTING STRUCTURE, NEW CFO: On October 19, after Disney filed historical financials with its new segment reporting, breaking up its linear networks business between Sports and Entertainment, Morgan Stanley said “the most important element of this new disclosure” was “the first-ever reveal” of ESPN’s financials. This new disclosure is “highly informative” as investors debate the potential growth outlook for ESPN and assess the opportunity to monetize highly profitable but declining linear networks, says the analyst, whose Overweight rating on shares remains based on a bullish view on the value of its Parks & Experiences segment.

On October 31, Evercore ISI analyst Vijay Jayant lowered the firm’s price target on Disney to $100 from $110 and kept an Outperform rating on the shares as the firm rolled out its new Disney model following recent segment reporting changes that reorganized the legacy Disney Media and Entertainment Distribution, or DMED, businesses. DMED has been split up into two new segments called Entertainment and Sports, notes the firm, which believes the new disclosure helps shine a spotlight on the varying trends across Disney’s sports and entertainment assets. The firm’s trimmed target is based on about 20 times its FY24 adjusted EPS forecast of $4.95, the analyst noted.

On November 6, Disney CEO Robert Iger announced that Hugh Johnston has been named senior executive VP and Chief Financial Officer, effective December 4. Johnston is vice chairman and CFO of PepsiCo (PEP), where he has held numerous leadership positions during a 34-year career with the multinational food and beverage company. Johnston will join The Walt Disney Company as CFO following his departure from PepsiCo on November 30.

KeyBanc analyst Brandon Nispel believes the CFO news would be viewed as “neutral to the stock,” noting that Johnston has extensive experience as CFO of a large multi-national company. The firm has a Sector Weight rating on Disney’s shares.

STRIKES CONTINUE: On May 2, the Writers Guild of America said that after not reaching an agreement with Hollywood studios and streamer, its members would go on strike.

On July 13, SAG-AFTRA, which identifies itself as “the world’s largest labor union representing performers and broadcasters,” announced that its members had also elected to go on strike.

On September 25, Andrew Dalton of The Associated Press reported that the Writers Guild of America reached a tentative agreement with Hollywood to end a historic screenwriters strike after nearly five months. “WGA has reached a tentative agreement with the Alliance of Motion Picture and Television Producers,” the guild said in an email to members. The three-year contract agreement must still be approved by the guild’s board and members before the strike officially ends.

On October 12, Joe Flint of The Wall Street Journal reported that negotiations between Hollywood studios, streamers, and striking actors had stalled. The alliance representing entertainment-industry companies said the new proposal from the Screen Actors Guild submitted “would create an untenable economic burden,” according to the Journal. The coalition of studios, streamers, and networks claimed the proposal would cost more than $800M annually. If an agreement is not reached by the end of October, it will likely greatly diminish the studios’ chances of salvaging a 2023-2024 television season and wreak havoc on movies, TV production, and release schedules, the report added.

On the earnings call hosted by Warner Bros. Discovery (WBD) earlier this morning, CFO Gunnar Wiedenfels said, according to a transcript: “On the challenging side, it is becoming increasingly clear now that much like 2023, 2024 will have its share of complexity, particularly as it relates to the possibility of continued sluggish advertising trends. To that point, while streaming advertising remains robust, the state of the overall linear ad market during the second half of this year has been disappointing. And looking ahead, while it is early, the timing of an ad recovery is currently difficult for any of us to predict with any conviction. And finally, as we begin to formulate the initial framework of our TV production business getting back to work into 2024, there’s simply a lot we don’t know yet. While we have every confidence that this will eventually ride itself throughout the next year, and there should be an eventual tailwind from the end of the work stoppage, this is an evolving process, and there is a real risk at this point that some negative financial impact of the strike will extend into 2024 to some extent.”

CONSENSUS: In terms of overall results for the fiscal fourth quarter, analysts are calling for Disney to report total revenue of $21.43B. The consensus Q4 earnings forecast stands at 69c per share. For the December-end quarter, analysts’ consensus currently calls for revenue of $24.24B and for the “House of Mouse” to post a profit of $1.13 per share, according to data from Bloomberg.

SENTIMENT: Click here to check out recent Media Buzz Sentiment on Disney as measured by TipRanks.