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Disney stock set to face its worse day in a year

Disney stock set to face its worse day in a year
Jordan Major

Disney‘s (NASDAQ: DIS) shares have undergone a notable downturn in the aftermath of the company’s latest financial report, with a significant 7.6% drop observed during Tuesday’s premarket trading session.

This decline, if sustained, would mark a departure from the positive trajectory Disney has enjoyed in the wake of its earnings releases over the past three quarters.

Should the current trend persist until market close, Disney’s stock would record its most substantial single-day slump in approximately a year. Not since May 11, 2023, when it plummeted by 8.7%, has the company experienced such a significant decline within a 24-hour period. Throughout the preceding year, downturns exceeding 3.9% have been a rarity for the entertainment giant.

Despite a robust performance that saw its stock surge by 29% over the course of 2024 leading up to Monday’s close, Disney’s recent announcement regarding its streaming segment has prompted a sharp market reaction.

While the company celebrated a milestone with its streaming division turning a profit for the first time, it forewarned of weaker results for the current quarter, causing shares to tumble by as much as 8% before regular trading hours.

This forecast underscores the persistent challenges Disney faces in establishing sustainable profitability in the increasingly crucial streaming arena, especially as traditional linear TV revenues decline.

However, investor sentiment toward Disney has been bolstered in recent months by CEO Bob Iger’s strategic turnaround efforts, further buoyed by the company’s recent victory in a prominent proxy battle against activist investor Nelson Peltz.

Q2 Disney results

In the fiscal second quarter, Disney’s direct-to-consumer (DTC) segment, encompassing platforms like Disney+ and Hulu, reported a significant turnaround, generating an operating income of $47 million compared to a staggering $587 million loss in the corresponding period the previous year.

Nevertheless, the company anticipates continued losses in the DTC sector for the third quarter, primarily attributed to setbacks from its Indian arm, Disney+ Hotstar.

While Disney’s streaming endeavors showed promising signs of progress, not all platforms within its portfolio proved profitable in Q2. Including ESPN+, total direct-to-consumer losses amounted to $18 million, a notable improvement from the $659 million loss reported in the same period last year. Disney aims to achieve overall streaming profitability by the fourth quarter of the current fiscal year.

Despite the market’s initial jitters, Disney’s Q2 results exceeded analyst expectations, with adjusted earnings per share reaching $1.21, surpassing the projected $1.10 and outpacing the $0.93 reported in Q2 2023. Revenue for the quarter stood at $22.1 billion, meeting consensus estimates and surpassing the $21.82 billion figure from the prior-year period.

Disney revises its full-year guidance

Furthermore, Disney revised its guidance for full-year adjusted earnings growth upward to 25%, a notable increase from the previously forecasted 20%. However, the company faced headwinds following the merger of its Star India business with Reliance Industries, resulting in an impairment charge exceeding $2 billion.

KeyBanc analyst Brandon Nispel commented on the Q2 results, noting that the soft guidance for entertainment streaming in the next quarter may temper investor enthusiasm. Nevertheless, he emphasized that these developments reinforce CEO Bob Iger’s narrative of a significant turnaround underway at Disney.

Nispel also highlighted potential concerns among investors regarding Disney’s cautious outlook for its Experiences business, encompassing theme parks. The company anticipates third-quarter operating income for this segment to remain “roughly comparable to the prior year.”

Disney’s CFO, Hugh Johnston, elaborated on the earnings call, citing signs of a global slowdown in post-COVID travel at its theme parks and anticipating profitability challenges due to rising costs and inflationary pressures.

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