Walt Disney: More than ESPN
05/22/2017 2:50 am EST
Movies, entertainment and theme park company Walt Disney (DIS) posted earnings per share of $1.50, versus the $1.41 estimate, in Q2 2017. DIS had sales of $13.3 billion vs. a $13.5 billion estimate, observes Chris Quigley, contributing editor to The Prudent Speculator.
Although Disney reported solid profitability from its recently opened park in Shanghai and a larger-than-expected stock buyback, concerns about ESPN subscriber losses and a weak advertising environment weighed on investors.
CEO Bob Iger largely brushed off the recent headlines over at ESPN (including the dozens of layoffs announced on April 26), “The strength of the brand and consumer demand makes ESPN extremely attractive to new platforms and services entering the market which has led to ESPN content being featured on a growing array of over-the-top services, including Sling TV, Hulu, PlayStation Vue, DIRECTV and YouTube TV."
Iger continues, "Right now, they are a small part of the pay TV universe, but we believe they'll be a much bigger part of the business going forward. And from a per sub pricing standpoint, these new services are just as valuable to us as traditional platforms.”
While ESPN continues to be a concern for investors, we believe that the emphasis on streaming and the draw of live sports will ultimately benefit DIS and its shareholders. Disney expects to launch a stand-alone, ESPN-branded service later this year.
We think that the a la carte options for television will continue to gain in popularity with consumers as the classic get-everything cable packages continue to get unbundled.
Whether or not the streaming subscriptions are as valuable as cable subscribers to Disney remains to be seen, but we think removing a distributor or intermediary would be inherently more profitable over the long term if the subscribers stay.
We like Disney’s diverse revenue stream, loyal fan base, solid portfolio of franchises (Guardians of the Galaxy Vol. 2 is yet another blockbuster movie release) and unrivaled ownership of priceless content. Our Target Price now stands at $145.