What To Expect From Disney In Q4?

Disney (NYSE:DIS) is expected to publish its Q4 FY’24 results around November 14. We expect revenues for the quarter to come in at $22.5 billion, slightly ahead of consensus estimates, marking an increase of almost 6% compared to the last year. We expect earnings to stand at $1.11 per share, roughly in line with consensus and up from $0.82 in the year-ago period.  See our analysis of Disney Earnings Preview for an overview of how Disney’s revenues and earnings will likely trend for the quarter. So what are some of the trends that are likely to drive Disney’s results?

The performance of Disney’s Entertainment business could remain a mixed bag. The linear TV business has underperformed recently due to lower advertising and declining affiliate revenues in the domestic market. Over Q3, revenues for the company’s Linear Networks fell by roughly 7% year-over-year to $2.7 billion.  However, things should be stronger on the streaming front. Although subscriber growth has been somewhat modest, with the core Disney+ offering (excluding Hotstar) adding just about 700k subscribers last quarter, Disney is benefiting from stronger pricing growth at Disney+ and, to a lesser extent the Hulu service. Advertising-related revenue on Disney’s streaming offerings is also picking up, led by higher impressions. Disney continues to focus on monetization of its services, raising prices for Disney+ yet again in the U.S. with both the basic ad-free and ad-supported plans seeing a $2 monthly price hike, although this will not have an impact on Q4 earnings. Disney achieved profitability for its streaming businesses as a whole last quarter and is likely to see profitability pick up a bit in Q4. Disney expects Disney+ subscribers to only see modest growth this quarter as well.

There are concerns regarding Disney’s theme park operations. Although this segment has been a solid performer post the Covid-19 reopening, the near-term outlook appears mixed as Disney anticipates higher costs and a normalization in attendance levels. Over Q3 FY’24, the Experiences business – which includes theme parks – saw revenue increase by a mere 2% year-over-year to $8.4 billion, while operating profit fell by 3%. The outlook for Q4 also looks soft, with Disney guiding that the Experiences operating income could decline by mid-single-digits year-over-year. Besides the broader post-Covid easing, Disney expects Disneyland Paris to see a reduction in normal consumer travel due to the summer Olympics held last quarter and also some cyclical factors in China. That said, this could be offset by a continued strong performance from the Disney Cruise Line business.

Notably, DIS stock has performed worse than the broader market in each of the last 3 years Returns for the stock were -15% in 2021, -44% in 2022, and 4% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could DIS face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

So is Disney stock undervalued in the current environment? Despite concerns in the streaming and media operations, we remain positive on Disney stock for a couple of reasons. Disney is looking to unlock more value by restructuring its business while cutting costs to bolster profitability. The company expects to meet or exceed its goal of cutting about $7.5 billion in expenses by the end of this fiscal, and consensus estimates that earnings per share are projected to grow by almost 30% versus the last year. We value Disney stock at about $116 per share, which is about 20% ahead of the current market price. See our analysis of Disney’s valuation for a closer look at what’s driving our price estimate for Disney. Also, see our analysis of Disney revenue for a closer look at the company’s key revenue streams and how they have been trending.

[1] Returns as of 10/25/2024
[2] Cumulative total returns since the end of 2016

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