Disney’s Streaming Service Announcement & Q3 Earnings Report

This article covers the announcement of Disney's streaming service and the company's third quarter 2017 earnings report. As CNBC reports, The Walt Disney Company (NYSE:DIS) is pulling its movies off of Netflix as it prepares to launch its own streaming service. The announcement of this new initiative coincided with Disney's Q3 FY17 earnings report after market close. Shares of Disney are currently down 3.3% in alter-hours trading. Here are the links to Disney's Q3 live audio webcast and earnings release.

Disney's Streaming Service Announcement

In 2019, Disney plans to launch its direct-to-consumer streaming service. With regards to the new service, Disney plans on investing heavily in original content. This original content will comprise both movies and tv shows. Disney's streaming service will be competing against the best-of-the-best companies including: Amazon, Netflix, and Time Warner.

Of course, Disney owns a vast amount of trademarks and intellectual property to start its direct-to-consumer streaming service. However, it is impossible to forecast future demand of Disney's streaming service. Because this service will be internally developed, the company may lose important economies of scale. In addition, this project will require significant, ongoing capital expenditures. Disney must provide a large initial outlay of cash to set up the streaming infrastructure. Then, it will cover the annual expenses of content creation.  Generally speaking, Disney shareholders do not have the right risk profile to look favorably upon this initiative.

Third Quarter Earnings Analysis

As reported on other outlets, Disney beat earnings expectations but missed on revenue expectations. For the three months ended July 1, 2017, Disney reported the following financial metrics:

  • Realized: $1.58 per share on revenue of $14.24 billion
  • Consensus estimates: $1.55 per share on revenue of $14.42 billion

Additionally, the cable element of Disney's Media Networks segment experienced a 23% decline in operating income amid trouble at ESPN. Another interesting revelation from the Q3 report is Disney announced a controlling stake in BAMTech for $1.58 billion. Here's what Disney's CEO stated on the acquisition:

Today we announced a strategic shift in the way we distribute our content. The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech's full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market.Bob Iger, Disney Chief Executive Officer

DIS Stock Rating 

In a previous article on Bob Iger Selling Disney Stock, we issued a neutral rating on Disney stock. At the time, Disney stock traded at $105 per share. In addition to insider selling, we cited ESPN's laggard performance for our neutral rating on the company. After reviewing third quarter earnings and Disney's streaming service announcement, The Stock Trader Blog maintains its neutral rating on DIS stock. Disney is clearly struggling with portions of its legacy businesses. Furthermore, the company is making tremendous capital expenditures and investments to reignite growth. Historically, uncertainty of the future and cash burn are a bad combination for shareholders. Therefore, we are not adding the stock to our Bullish List or our Bearish List.

Eric Bruin

Eric Bruin

Founder. Kelley School of Business ’17. Write about stocks and business news. Contact for business inquiries or to write articles for The Stock Trader Blog.

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