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Disney’s shares rise despite revenue miss

 

Thursday, August 10, 2023

Today’s headlines

What’s happening: Shares of The Walt Disney Company gained in after-hours trading on Wednesday, after the company released results for its third quarter.

What happened: The media conglomerate reported downbeat quarterly sales and a decline in profits for its fiscal third quarter.

Disney also announced plans to raise prices for its streaming services to ease the pressure on its margins.

How were the results: The Burbank, California-based company reported single-digit growth in sales for the quarter ended July 1, which missed market estimates.

  • Revenues grew by 4% year-over-year to $22.33 billion, just short of the consensus estimates of $22.50 billion.
  • Adjusted earnings fell 5.5% from the year-ago period to $1.03 per share but topped Wall Street expectations of 97 cents per share.

Why it matters: Direct-to-consumer revenues rose 9% year-over-year to $5.5 billion, while operating loss for the direct-to-consumer segment improved 52% to $512 million during the quarter.

Although Disney+ added 800,000 subscribers globally, the Disney+ Hotstar streaming service in India lost 12.5 million subscribers, after the company failed to gain rights to the IPL cricket league.

Revenues from Media and Entertainment Distribution contracted by 1% year-over-year to $14 billion last quarter, while sales at Parks, Experiences and Products surged 13% to $8.3 billion, driven by a sharp recovery in the Shanghai Disney Resort, which remained open through the quarter.

In a competitive streaming market, Disney is looking to attract and retain subscribers. The company announced plans to launch ad-supported streaming services in Europe and Canada and ad-free packages in the US over the next few months.

Management also announced plans to increase the price of the ad-free version of the Disney+ service by 27% to $13.99 and of its no-ad version of Hulu by 20%.

How shares responded: Disney’s shares gained 2.2% to $89.45 in extended trading session on Wednesday, following the release of quarterly results. The stock has lost around 19% over the past six months.

What to watch: Investors will watch whether the increase in prices results in increased churn of subscribers for the company. Markets will also monitor global economic growth data, as this may impact the recovery in parks and cruises.

The markets today

European stocks will be in focus today after closing higher on Wednesday

Context: European stocks climbed to a one-week high on Wednesday, driven by a rebound in Italian lenders.

Details: Shares of Italian banks dipped on Tuesday, after Italy’s cabinet approved a 40% windfall tax.

Banking stocks recovered on Wednesday, after the Italian government clarified that the tax on net interest income would be capped at 0.1% of total bank assets.

Investors also digested data from China showing consumer prices moving to the negative zone for the first time since February 2021. China’s consumer prices fell by 0.3% year-over-year in July, recording the first decline since February 2021, versus a flat reading in June. The country’s producer prices also declined by 4.4% year-over-year in July, after a 5.4% decline in the previous month. The figure compared to market expectations of a 4.1% decline.

Investors closed watched the ongoing earnings season. Shares of Delivery Hero gained around 4.7%, after the German company raised its full-year revenue forecast.

The oil and gas index added around 2.3%, notching its best session in two months, with oil prices surging to their strongest levels since April.

The STOXX Europe 600 index gained 0.43% to close at 460.58 on Wednesday. London’s FTSE 100 rose 0.8% to settle at 7,587.30, while Germany’s DAX 40 and France’s CAC 40 added 0.49% and 0.72%, respectively.

The FTSE MIB jumped 1.31% to settle at 28,308.09, snapping its six-session losing streak.

What are expectations: With no major economic reports from the Eurozone today, investors will watch the inflation data from the US. The annual inflation rate in the US, which eased to 3% in June, is expected to accelerate to 3.1% in July. Analysts expect consumer prices to increase 0.2% in July.

Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.54%, 0.70% and 1.12%, respectively.

The news shaping the markets

US Secretary of State Antony Blinken criticised Russia for its proposal to supply six African countries with free grain. The news sent the safe-haven US dollar index slightly lower this morning.


Australia’s consumer inflation expectations eased to 4.9% in August, from 5.2% in the prior month, lending support to the AUD/USD forex pair.


The Philippines said its economy had unexpectedly contracted by 0.9% in the second quarter, missing market expectations of a 0.5% expansion. This sent the PHP/USD pair lower in forex trading this morning.


UK’s RICS Residential Market Survey house price balance declined to -53 in July, from -48 in the prior month, falling to the weakest level since 2009, which exerted pressure on the GBP/USD forex pair.


Japan’s producer prices increased by 3.6% year-over-year in July, following a 4.3% rise in the previous month. This figure being higher than market expectations of 3.5% sent the JPY/USD pair lower in forex trading this morning.

What else to watch today

Saudi Arabia’s industrial production, Turkey’s unemployment rate, industrial production, labour force participation rate and foreign exchange reserves, Italy’s inflation rate, South Africa’s gold production, mining production and manufacturing production, US initial jobless claims, continuing jobless claims, natural gas stocks change and government budget, Bank of Mexico’s interest rate decision, as well as India’s money supply M3.


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