Zhitong Finance learned that after Disney (DIS.US) announced earnings for the second fiscal quarter this week that exceeded expectations, a senior analyst said that the company is facing constructive improvements, clearing the way for “long-term profitability.” David Joyce, a senior analyst at Seaport Research Partners, called Disney's latest earnings report “mixed.” Regarding Disney's performance, which plummeted by more than 9%, he also said that he believes Disney's stock price was undervalued after revenue fell; he thought “the stock price is closer to 128 US dollars than the current 106 US dollars.”
He said, “It did have some positive surprises, such as the direct-to-consumer streaming business being profitable two quarters ahead of schedule. But other departments also spent more than expected.”
As of March 30, the world's largest entertainment company's adjusted earnings per share (excluding some special projects) rose to $1.21, exceeding Wall Street analysts' average expectations of $1.12. Among them, the operating profit of the business division, which includes Disney theme parks, increased by about 12% year on year, while the operating loss of Disney's streaming media business in the second fiscal quarter was drastically reduced to $18 million from 659 million US dollars in the same period last year.
However, in terms of overall revenue, Disney's total revenue for the second fiscal quarter ending March 30 was approximately US$22.08 billion, up 1% year over year. This figure is slightly lower than analysts' average forecast of US$22.15 billion.
Joyce said, “In fact, I think at the end of the day, next quarter will be weak again because different event times will affect sports profitability (and) some different events will affect streaming profitability.”
He added that the outlook for Disney's fiscal fourth season, which ends in September, looks brighter. “At that point, they'll start cracking down on account sharing, which will definitely help increase the number of users and revenue,” he said. He cited Netflix's success in cracking down on shared accounts, and the company began implementing password sharing restrictions nine months ago.
Joyce notes that as Disney adapts to profitable streaming services, investors will begin to consider long-term profitability and what Disney+ means for the future of the entertainment industry. He said, “I really think there is room for the stock price to rise. I will seize and take advantage of this correction. It is expected that within three to six months from now, the stock price will rise sharply.”
Additionally, Joyce mentioned that theme parks account for a major portion of Disney's profits and “will have better comparability in the fourth quarter.” Joyce said, “Considering the long-term profitability, the franchise here is very valuable. Theme parks are driving profits. They are still seeing strong demand, and while they do say they are returning to normal demand rather than the double-digit increase they saw after the pandemic, demand for all new attractions remains. This is true of all of their theme parks. This is a factor supporting long-term valuation metrics.”