Disney Q4 earnings preview: Where next for DIS stock?

Graphic of trading data chart
Josh Warner
By :  ,  Market Analyst

When are Disney’s Q4 earnings?

Disney will release fourth quarter and full year results after the markets close on Tuesday November 8. A live audio webcast with management will be held on the same day at 1630 ET, or 1330 PT.

 

Disney Q4 earnings consensus

Wall Street forecasts Disney will report a 15% year-on-year rise in revenue in the fourth quarter to $21.3 billion and that adjusted EPS will jump 38% to $0.51, according to consensus figures from Bloomberg.

If it meets expectations in the final quarter, Disney is on course to report a 25% increase in annual revenue to $84.4 billion and a 57% rise in full year adjusted EPS to $3.59.

 

Disney Q4 earnings preview

Diversity has paid off for Disney in what has proven to be a tumultuous couple of years. The popularity of its films and content during the pandemic, when people were stuck at home during lockdown, helped prop the company up as it was forced to shut its theme parks and resorts. But today, it is the recovery of its parks and resorts that is helping counter a slowdown from its media and entertainment division.

The 15% year-on-year rise in revenue pencilled-in by Wall Street is expected to be driven by its theme parks and experiences. This division is forecast to see revenue rise 39% to $7.6 billion. Trends have remained strong here and demand has held up despite economic fears and price increases, benefiting from a shift in spending from goods to services. Disney’s sites are still proving to be a leading destination for holidaymakers, and that allows it to wield pricing power amid the inflationary environment.

Theme parks will drive Disney's revenue growth

(Source: Estimates for Q4 financial year revenue are from Bloomberg)

The media and entertainment division will contribute, with analysts anticipating a tepid 3.8% year-on-year rise in sales during the quarter, although that will be the slowest topline growth from the division in 18 months.

Disney’s streaming services – Disney+, Hulu and ESPN+ - are included in the Media & Entertainment division and the company has enjoyed huge success in this area. Subscribers have increased at a rapid pace and the company overtook rival Netflix for the first time earlier this year. We saw Netflix briefly poach it back when it reported a return to growth a couple of weeks ago, but Disney will undoubtedly reclaim the lead when it reports this week and will be hoping to widen the gap going forward.

Below is an outline of how the two have grown subscriber numbers over the past two years. We know that Netflix ended September with 223.1 million paying subscribers, but Disney is expected to have ended October 2 (the end of the fourth quarter of its financial year) with 233.8 million. That equates to 12.6 million net additions, with around 9.3 million of them forecast to have joined Disney+.

Disney will overtake Netflix in terms of streaming subscribers

(Source: Estimates for Disney subscribers for Q3 2022 calendar year are from Bloomberg)

Disney’s operating profit is forecast to rise 29% from last year to $2.05 billion. Once again, we are expecting its parks and resorts to come to the rescue as profits rebound and counter the most severe drop in earnings from the media and entertainment arm in years. That shows that diversity is paying off for Disney.

Disney's diversity has kept it in the black

(Source: Estimates for Q4 financial year profits are from Bloomberg)

Notably, the sequential drop in profits from theme parks and experiences is expected to be down to the impact from Hurricane Ian, which is expected to knock off around $100 million this quarter.

Media and entertainment profits are falling as losses from Disney+ continue to swell as it prioritises growth and ramps-up content production. This will eat into the division’s profits that come mainly from its domestic TV channels.

Still, there are threats facing both sides of the business. Fresh Covid-19 lockdowns in China, which have recently forced its site in Shanghai to close once again, remain a problem, and fears of a recessions could hurt consumer spending on everything from streaming services to holidays, while also raising the risk that businesses will pullback on advertising that drives its TV business.

Still, Disney is among the minority of large cap stocks delivering double-digit growth at a time when most are starting to feel the pressure from deteriorating economic conditions. Wall Street believes the new 2023 financial year will be another period of growth with analysts pencilling-in an 11.5% rise in revenue and another impressive 43% jump in adjusted earnings – although it is worth noting that profits remain below pre-pandemic levels.

 

Where next for DIS stock?

Let’s start with the weekly chart, which has two major takeaways. The first is that Disney shares have been capped by a falling trendline that can be traced back over a year, which it is once again testing this week. The second is that $94.30 has proven a reliable floor for the stock during the last four months – having held every time it has been tested so far. We can see that the share price is being further wedged between the falling trendline and that floor, suggesting one of them will have to give before the end of 2022.

What will give first? The falling trendline or the floor?

The same downtrend is on the daily chart below, and we can see the stock is testing this level of resistance again. If the stock does gain higher ground and break above here then we could see it climb toward the 200-day moving average at $116, in-line with the peak we saw in September.

The current floor for the stock is slightly lower than what we saw on the weekly chart at $91.50, in-line with the post-pandemic low and the level of support we saw back in September 2016. Any drop below here opens the door to the pandemic-induced low from back in March 2020.

Where will Disney stock head after the earnings?

 

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