Disney Earnings: Lots of News, but Largely Mundane Financial Results

Key Morningstar Metrics for Disney

• Fair Value Estimate: $120
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Disney’s Earnings

Disney DIS has made a lot of news, and further transformation of its business is imminent, but fiscal third-quarter results weren’t particularly notable. Strong experiences growth and the upward trend in streaming profits countered lackluster sports results and streaming sales.

Why it matters: Disney is successfully managing the decline of the traditional television industry, which once made up most of its profits. Now, the rapidly declining entertainment linear networks make up less than 20% of operating profit; linear ESPN is stable; and streaming profits are expanding.

• Entertainment streaming operating income grew for the fourth straight quarter to reach $346 million, versus negative $19 million a year ago. This profit from streaming was half as high as from entertainment linear networks. The gap will close further as linear declines while streaming trends up.
• Excluding Star India, which Disney divested in December, sports operating income declined 4% year over year, largely due to higher rights fees, and sales grew 1.5%. However, the sales trend has been up, and the fate of this segment will be determined by streaming ESPN, set to launch Aug. 21.

The bottom line: We maintain our $120 fair value estimate, as our outlook is unchanged. We think Disney has positioned itself well to navigate the evolving media industry, and its experiences business, which is the dominant factor behind our wide-moat rating, continues getting stronger.

• Experiences operating income grew 13% year over year on 8% higher sales, boosted by the launch of a new cruise ship last year and strong domestic results that included flat attendance and higher spending per guest. The firm has two additional cruise ships due this year.
• The whirlwind of news included ESPN’s deal with the National Football League, the official launch date for the ESPN streaming service, and the consolidation of the Hulu and Disney+ streaming platforms. Each of these items should further enhance streaming prospects.