14 May 2021

Disney’s Q2 Results Fail to Entertain Investors

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What’s happening: Shares of Walt Disney Company fell in extended trading on Thursday, despite the media and entertainment giant reporting upbeat earnings for the quarter.

What happened: The covid-19 pandemic had a massive impact on Walt Disney’s theme parks, experiences, and various other businesses.

Most of the company’s parks were either shut or operating at reduced capacity during the quarter, while cruises remained suspended. However, the pressure on the stock yesterday is unlikely a response to these businesses.

How were the results: The Burbank, California-based company reported profit growth for the fiscal second quarter, despite a decline in sales.

  • Revenue contracted by 13% to $15.6 billion, while also missing market expectations of $15.9 billion.
  • Earnings came in at $912 million, or 50 cents per share.
  • Excluding onetime items, earnings stood at 79 cents per share, up 32% from the year-ago quarter and substantially higher than the consensus estimate of 27 cents per share.

Why it matters: Despite the company closing its theme parks and suspending dividend, the stock gained more than 75% in 2020, driven by accelerated subscriber growth for the Disney+ streaming services.

With continued outperformance by this business, expectations have remained elevated. Disney+ failed to meet the high estimates for the fiscal second quarter, reporting the addition of 8.7 million subscribers to reach 103.6 million, versus expectations of 14.4 million additions, which would take the total subscribers to 109 million.

Although the growth in subscribers was undoubtedly explosive, the numbers failed to impress investors who were expecting a much stronger performance.

Meanwhile, ESPN+ subscribers grew by 1.7 million to reach 13.8 million and Hulu added 2.2 million subscribers during the quarter.

CEO Bob Chapek tried to reassure shareholders by saying, “We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fueling long-term growth for the Company.” However, business at the company’s theme parks have remained under pressure, with resorts being either closed or operating with limited capacity. The division’s revenues fell 44% year-over-year to $3.2 billion last quarter.

How shares responded: Shares of Walt Disney Company plummeted 3.9% to $171.40 in after-hours trading following the release of quarterly results. The stock has declined by 5% over the past three months.

What to watch: Investors will continue to keep an eye on subscriber growth, following the resumption of movie and TV production. The company has witnessed a setback in its new market, India, where the Premier League has been suspended with some players testing covid positive earlier this month. Markets will monitor subscriber growth for the Disney+Hotstar service in the country during the current quarter.

The Markets Today

     

US stocks will be in focus today, ahead of a basket of economic reports from the country.

Context: Wall Street rebounded on Thursday, after recording sharp losses in the week on rising inflation woes.

Details: The US stock market tumbled on Wednesday, after the key inflation report showed a higher-than-projected rise in consumer prices.

The Dow Jones index shed 680 points to record its worst single-session losses since January, while the S&P 500 notched its biggest one-day decline since February.

Inflation data had investors worried about the Federal Reserve being forced to raise interest rates sooner than planned. Inflation concerns have kept tech stocks, the best performing sector in 2020, under significant pressure so far this year.

Producer prices, too, surged 6.2% in April, adding to investor concerns. Meanwhile, markets welcomed strong labour data showing a decline in initial jobless claims to a 14-month low. The number of people filing new claims for jobless benefits fell by 34,000 to 473,000 in the recent week. However, the high unemployment rate continues to be a concern area.

The Dow Jones index climbed 434 points to settle at 34,021.45 on Thursday, while the S&P 500 added 1.2% to reach 4,112.50. The tech-heavy Nasdaq 100 rose around 1.5%, but pared gains later in the session and settled higher by just 0.8%, at 13,109.15 on Thursday.

What to watch: Investors await data on retail sales, industrial production, and consumer sentiment. Retail sales, which grew 9.8% in March, is expected to increase just 1% in April. Analysts expect industrial production to rise 1% in April, following 1.4% growth in the previous month. The University of Michigan's consumer sentiment index is projected to improve to 90.4 in May, from 88.3 in April.

Rising covid-19 cases remain one of the top concerns for markets, with total global infections surpassing 160.8 million.

Other Markets: European trading indices closed mixed on Thursday, with the German DAX 30 and French 40 up by 0.33% and 0.14%, respectively. However, the FTSE 100 and STOXX Europe 600 lost 0.59% and 0.14%, respectively.

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What else to watch today

     

France’s unemployment rate, India's wholesale prices, balance of trade and foreign exchange reserves, Spain’s inflation rate, European Central Bank’s monetary policy meeting accounts, Canada’s new motor vehicle sales, wholesale sales and manufacturing sales as well as America’s import prices, export prices, business inventories and Baker Hughes crude oil rigs.

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