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Disney’s Earnings Are Today. Parks and Streaming Are Key.

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The Disney+ logo. Subscribership growth will be a critical element of the results.
Gabby Jones/Bloomberg

Walt Disney ‘s results on Wednesday will be a chance for the company to show it can deliver on the bullish thesis shared by many of its shareholders: a postpandemic theme parks recovery that boosts earnings today, alongside streaming-subscriber growth that promises recurring profits in the future.

The past few quarters have shown slowing streaming growth and parks still impacted by coronavirus variant waves, sending Disney’s stock falling. Wednesday is a chance to change the narrative.

Disney (ticker: DIS) is scheduled to report results for its fiscal first quarter, which corresponds to the calendar fourth quarter, on Wednesday after the market closes. Management will host a call with analysts at 4:30 p.m. ET.

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Analysts’ consensus estimate is for 74 cents in adjusted earnings per share on $20.3 billion in revenue last quarter. Those would be up 130% and 25%, respectively, year-over-year. Fiscal first-quarter operating income is expected to come in at $2.0 billion, which would be up 51% from a year earlier.

There will be just as much focus on Disney’s operating metrics as its financials in the last three months of 2021. On average, Wall Street expects Disney+ to end the period with about 125.4 million subscribers, up by 7.3 million. But there is little agreement among analysts, with estimates ranging from growth of 1 million to growth of 15.9 million. That would compare with growth of 2 million in Disney’s disappointing fiscal fourth quarter, which sent the stock falling 7% the following day.

Hulu is seen adding 1.2 million subscribers last quarter and ESPN+ is expected to grow by roughly 800,000 subscribers.

Disney management has a target of between 230 million and 260 million Disney+ subscribers by the end of its fiscal 2024. Last quarter, CEO Bob Chapek warned that the path to get there wouldn’t be linear. Still, the service set high expectations after adding some 74 million subscribers in just its first year after launch, and management has repeatedly raised its subscriber target. Wall Street expects Disney+ subscriber growth to accelerate in the second half of Disney’s fiscal 2022, when hotly anticipated content hits the service and it launches in more countries.

Still, judging by recent quarters’ earnings reactions, the company’s performance on the subscriber front will be a make-or-break number when it reports results on Wednesday. Netflix ‘s (NFLX) results last month were a concerning datapoint. Another whiff from Disney would have many investors analysts calling into question their industrywide streaming growth expectations.

“Structural streaming concerns also remain top of mind, including whether Disney+ can develop content to broaden out beyond its Disney/Marvel/Star Wars fan base and if Netflix’s slow growth patch suggests a corollary lesser streaming [total addressable market]/margin outlook for its competitors, like Disney+,” wrote Credit Suisse analyst Douglas Mitchelson on Monday.

While Disney’s future is closely tied to its streaming success, the company today is still more of a legacy media and entertainment business. A postpandemic recovery at its theme parks segment has been a key part of many bullish investors’ thesis on the stock. When that didn’t materialize in 2021, Disney shares suffered. The stock has lost about 25% over the past year, versus a 16% return including dividends for the S&P 500.

Analyst consensus is for a 77% year-over-year recovery in revenues at Disney’s Parks, Experiences and Products segment in the fiscal first quarter, to $6.4 billion. Segment operating income is expected to swing to a $1.4 billion profit, from a loss in the year-ago quarter. Disney’s theme parks across the globe have largely reopened, cruises are sailing again, and vaccinated adults and children are eager to get back and spend–the company has said that revenue per guest is up significantly from prepandemic levels. Comcast ‘s (CMCSA) NBCUniversal reported a strong quarter for its theme parks last month.

The parks segment matters most for a recovery in Disney’s earnings this year. At the larger Media and Entertainment Distribution unit–which includes the company’s TV, movie, content licensing, and direct-to-consumer businesses–continued streaming losses are expected to weigh on segment profitability. Consensus forecasts are for $14.5 billion in revenue, up 15%, and $2.0 billion in operating income, up 10%.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

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