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Disney Reports Earnings Today. Disney+ Subscriber Numbers Hold the Key to the Stock.

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Marvel Studios’ WANDAVISION on Disney+

Marvel Studios 2021

Walt Disney’s

television, theme park, and movie businesses may make up the vast majority of its sales and earnings, but they’ll be an afterthought when the media and entertainment giant reports earnings on Thursday evening. All eyes will be on subscriber growth at Disney+ and the company’s streaming services.

The Wall Street consensus is that the company added about 14.4 million Disney+ subscribers in the fiscal second quarter, to reach about 109 million at the end of March. Analysts are also expecting Disney to report adjusted earnings of 27 cents per share on revenues of $15.9 billion in the period, which corresponds to the calendar first quarter. Those would be down 55% and 12%, respectively, from a year earlier, when the impact of the pandemic hadn’t fully hit.

The company plans to spend billions of dollars annually on content for Disney+, Hulu, Star, and ESPN+, and that cash has to come from somewhere. The parks business is a profitable and cash-generating machine for Disney in non-pandemic times, and a recovery there will be a key part of funding Disney’s streaming ambitions. Although parks have reopened and capacity limits have been relaxed in recent months, the first few months of 2021 won’t be a make-or-break period for the segment. How it does in fiscal 2022 or 2023 matters a whole lot more.

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Investors will be looking for signs of improvement at Disney’s parks last quarter, which won’t be hard to achieve. As long as the numbers are pointing in the right direction, the division won’t get much attention on Thursday. Nor will Disney’s movie-theater segment, which remains impacted by Covid-related closures. And TV-related sales or earnings won’t likely be a big surprise either—the cord-cutting trend isn’t going anywhere, but advertising revenues should show signs of improvement as corporate advertisers return to the market as the economy recovers. 

Where Disney has the most potential for an impactful beat or miss on Thursday evening will be at Disney+. Over the past year and a half, the market has turned its thesis on Disney stock on its head. From a century-old media conglomerate facing pressure from cord cutting and other irreversible trends, it’s now a streaming leader to rival

Netflix

(NFLX). At some 48 times forward earnings, the shares certainly trade more like a digital subscription growth stock than a legacy TV and movie business.

And Disney has set the bar high, with an explosive year of subscriber growth from Disney+ behind it and lofty management projections for future gains. Investors are expecting nothing less than continued or accelerating momentum on that front.

But the greater risk appears to be to the downside of that 14.4 million consensus estimate. Netflix cited a “Covid-19 pull forward” of subscriber growth in 2020 when it reported a big miss on the subscriber front last month, and shares sold off more than 7% after the results. Disney+ won’t be immune to the same trend.

Investors already appear to be treading carefully: Disney stock has soared more than 70% over the past year, but it has been dead money since early February, with shares trading in a narrow range between roughly $175 and $200. It will take a strong subscriber performance on Thursday to break out of that territory.

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