Walt Disney Co.’s (DIS, Financial) stock rose as the entertainment giant posted strong fourth-quarter results, with revenue and earnings reaching record levels as multiple developments in the company’s product portfolio cheered investors.
The company’s revenue rose 12% year over year to $14.3 billion, beating Wall Street estimates of $13.73 billion. It recorded non-GAAP earnings of $1.48 a share, surpassing analyst estimates of $1.34 a share.
The highlight of the earnings call, however, was the company’s announcement of its streaming service, Disney+, which will be launched late next year. While operating costs will see an initial upward march, the company’s plans to compete with Netflix (NFLX, Financial) by streaming its movies, including Star Wars and Pixar films, could help increase revenues in the coming years. As a result, investors well be counting on untapped long-term potential.
The company is leveraging the increasing demand for direct-to-consumer streaming, as it tries to garner more users through Disney+ and its sports streaming service ESPN+, with the sports service having garnered a one million-plus subscriber base since launching in April.
Another major development was the European Commission’s approval for Disney’s $71 billion acquisition of Twenty-First Century Fox (FOXA, Financial).
In a statement, CEO Robert Iger outlined the company's goals for 2019.Ă‚
“We remain focused on the successful completion and integration of our 21st Century Fox acquisition and the further development of our direct-to-consumer business, including the highly anticipated launch of our Disney-branded streaming service late next year,” he said.
On the earnings call, he also said the company hopes to increase its number of ESPN+ subscribers and gain a majority stake in Hulu. Iger’s strategy is to become the one-stop shop in all entertainment streaming, with ESPN focusing on sports, Disney+ on family entertainment and Hulu on programming created by Fox.
The top-performing business segment, media networks, which includes ESPN, registered 9% growth to $5.96 billion. Disney's theme parks and studio segments grew 11% to $5.1 billion and studio revenue jumped 50% to $2.2 billion, driven by Marvel's "Ant-Man and the Wasp" and Pixar's "Incredibles 2.”
From a valuation perspective, Disney currently floats a price-earnings ratio of 15.06 compared to the industry median of 19.07. The forward price-earnings ratio stands at 15.82 compared with the industry median of 16.86. Coming to fundamentals, the company’s operating margin stands at 24.84% versus the industry median of 6.64% and the three-year revenue growth rate stands at 8% versus the industry median of 1.8%.
All told, while short-term revenue pain and increased operating expenses are expected as Disney works to gain a bigger share of the direct-to-consumer streaming market, the long-term growth anticipated from these services is driving optimism. Disney owns ABC, ESPN, Pixar, Marvel, Lucasfilms and several theme parks. Moreover, Fox’s acquisition gives it access to FX Networks, National Geographic, over 300 international channels and a 60% stake in Hulu.
Disclosure: I do not own any of the stocks mentioned.
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