Walt Disney (NYSE: DIS) reported worse than expected earnings on May 11, though streaming numbers looked promising. Shares lost 2.29% during the session yesterday and another 2.88% in the after-hours trading when the report was released.
Expectations were revised downward by analysts going into the earnings as other streaming companies posted disappointing earnings. DIS reported $1.08 earnings per share (EPS), with revenue rising by 37% year-over-year to $19.2 billion, while Wall Street expected $20.1 billion.
An important detail was shared in the earnings report, and that a reduction in revenue of $1 billion due to an earlier termination of a license agreement with an undisclosed partner.
License revenue decline – content cost rising
Disney CFO, Christine McCarthy, in the earnings call, shared what she believes will be the future for licensing revenues, as the company expects them to keep declining throughout the fiscal year. On the other hand, expectations for content production costs are to keep rising as the shift to streaming content will be ramped up.
Disney+, the company’s streaming service, signed up 137.7 million subscribers, an increase of 7.9 million since the end of 2021. Wall Street expected DIS to add 5.3 net new subscribers; therefore, this increase was a positive surprise.
Chart and expectations
Shares of the company have had a ‘peaceful’ 2022 compared to its steaming peers; however, a decline and higher selling volumes since the middle of April have brought the shares below all daily Simple Moving Averages. The price action is close to the resistance seen in June 2021, and if the shares hold above $104, then further downside could be averted.
Analysts on Wall Street are in agreement around the stock still holding a strong buy consensus, predicting that in the next 12 months the average price of the shares will be $180. Compared to the current price of the shares at $105.21, this prediction would see a 71.09% upside potential in the stock.
Disney has had a rough couple of years, with Covid lockdowns hurting the Disneyland and Disney Cruise parts of the business in the previous years, the new year ushered in new challenges.
Rising inflation, rising yields, and war in Ukraine all have had an effect on how much people are ready to spend on entertainment, which in turn affects the streaming part of Disney.
For now, it seems to be doing a good job of enlisting new subscribers; however, geopolitics will have to come into play when deciding to either invest or skip DIS altogether in 2022.
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