Friday, November 13, 2020

Disney Shares Rise Despite Swing to Quarterly Loss

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the markets today

     

What’s happening: Shares of Walt Disney Co gained in extended trading on Thursday after the entertainment giant surpassed market expectations for the fourth quarter.

What happened: The pandemic forced Disney to keep its theme parks closed and postpone movie releases.

Despite this setback, the company’s well-timed focus on Disney+ helped it survive the crisis and report results much better than feared. However, Disney’s streaming service could be facing another challenge soon.

How were the results: The media conglomerate reported a decline in revenue and profits for the fourth quarter, although both metrices topped expectations.

  • Although overall revenue declined 23% to $14.71 billion, it came in ahead of the consensus estimate of $14.2 billion.
  • Adjusted loss stood at 20 cents per share, surpassing the consensus view of a 70 cents per share loss.

Why it matters: Walt Disney World and Disneyland remained closed in the fourth quarter, while ESPN had no live sports to air and there were no new theatrical releases by the company. The theme parks division reported a 61% decline in revenue to $2.6 billion, as the pandemic took a toll on the company’s most profitable business. Given the delay and cancelation of various sports events, Disney announced plans to eliminate 500 jobs at its ESPN arm.

Fortunately, the company had increased its focus on its streaming service, which paid off in the latest quarter. The Disney+ online subscription had been launched around a year back and the company had projected to reach between 60 million and 90 million subscribers by 2024. Subscriber growth for the streaming service was phenomenal, as people remained home amid the pandemic.

Disney had ended the third quarter with 57.5 million subscribers. In the fourth quarter, the subscriber count rose to 73.7 million, with Hulu’s customers surging 28% to 36.6 million and ESPN+ subscriptions almost tripling to 10.3 million.

Despite this good news, Disney+ is not out of the woods. The streaming service now faces a big test. Some subscribers had received Disney+ as a complementary offer, like the one-year free trial offered to Verizon’s customers which ended on Thursday. It is yet to be seen whether they turn into paying customers when the offer period lapses.

How shares responded: Disney’s shares rose 3.3% to $140.00 in after-hours trading following the release of quarterly results. The stock has gained around 3% over the past three months.

What to watch: With Disney+ promotions set to expire shortly, investors will keep an eye on the subscriber number in the current quarter. The company plans the release of Star Wars, Soul, and WandaVision in the coming months to retain subscribers.

Markets will also closely monitor covid-19 cases globally, as they await the reopening of the company’s theme parks and a return of footfall.

The Markets Today

     

US stocks will be in focus today, ahead of economic reports scheduled for release through the day.

Context: Wall Street closed lower on Thursday with a rise in covid-19 cases sparking fears of a slowdown in the economic recovery.

Details: Covid-19 cases continued to climb, with daily cases remaining over 100,000 for the ninth consecutive day in the US.

The already weak market sentiment was hit further by comments from Federal Reserve Chairman Jerome Powell around the country’s economic outlook remaining uncertain despite the positive vaccine-related news during the week. “From our standpoint, it’s just too soon to assess with any confidence the implications of the news for the path of the economy, especially in the near term,” Powell said.

Investors ignored the release of better-than-expected jobless claims data. According to the Labor department, around 704,000 Americans filed for unemployment in the week to November 7, lower than the consensus estimate of 743,000. The latest figure represents the fourth straight weekly decline in jobless claims.

Travel and banking-related stocks were among the worst performers on Thursday after cyclical stocks rebounded sharply earlier in the week.

The Dow Jones index shed 317 points to close at 29,080, while the S&P 500 declined 1% to 3,537. The tech-heavy Nasdaq 100 recorded gains earlier in the session but settled the day lower by 0.65% at 11,709.

What to watch: Markets await data on producer prices and consumer sentiment. Producer prices for final demand, which rose 0.4% in September, are expected to increase 0.2% in October. The University of Michigan's consumer sentiment index is projected to rise slightly to 82 in November, from a revised reading of 81.8 in October.

Investors will also keep a close eye on the rising covid-19 numbers, with total infections crossing 10.5 million in the US.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, German DAX 30 and the French 40 down by 0.68%, 1.24% and 1.52%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

Germany’s wholesale prices, Turkey's industrial production, retail sales and motor vehicle production, France’s inflation rate, Spain’s consumer prices, South Africa's SACCI business confidence index, Eurozone’s GDP annual growth rate, balance of trade and employment change, Brazil’s IBC-Br index of economic activity and industrial entrepreneur confidence index as well as the US natural gas stocks and Baker Hughes crude oil rigs.