DIS Stock Forecast: Clash of the Media Titans
This article was written by Isabelle Tao, a Financial Analyst at I Know First.
DIS Stock Forecast
“We keep moving forward, opening new doors, and doing new things, because we’re curious and curiosity keeps leading us down new paths.” – Walt Disney
(Source: Flickr)
Highlights
Disney will be a strong competitor to Netflix in the long term after Fox acquisition
Disney movies are not easily replaceable and will continue to drive its growth
Hulu and ESPN’s losses should caution investors, but Disney is shifting itself strategically to the streaming service.
Disney released its 3rd quarter earnings and results mostly fell short of investor’s forecasts. EPS was at $1.87 per share vs. $1.95 per share forecast and revenue was at $15.23 billion vs. $15.34 billion forecast by Thomson Reuters. Moving forward, here are Disney’s 4 main earning components and how I foresee each of them will do in the future:
Media and networks: $6.16 billion vs. $6.10 billion forecast by StreetAccount
Acquisition of Fox
After Comcast dropped its efforts to acquire the film and television assets of 21st Century Fox on July 19th, Disney shareholders approved Disney’s $71.3 billion acquisition of 21st Century Fox on July 27th. Disney would get Fox’s television and film studios, cable channels National Geographic, FX, Asian pay-TV operator Star India and a stake in Sky TV. It would also get Fox’s 30 percent stake in Hulu, making Disney the majority owner of Hulu.
There are 2 things significant about this acquisition:
- Gaining 60% share in Hulu. Hulu is currently losing money (around $1.5 billion per year) but Disney is acquiring it because it still poses a notable threat to Netflix. Hulu carries live television packages aimed at cord-cutting consumers, while Netflix carries mainly movies and its own productions. While it is hard to predict Hulu’s future, it is a fast-growing network with 20 million American subscribers and gained 3 million in the past three months. Netflix, in comparison, reported 57 million U.S. subscribers for the last quarter and an increase of fewer than 1 million subscribers in the same period. Hulu is also aimed at older audiences while the Disney streaming service is aimed at families. live television package aimed at cord-cutting consumers.
- An immense amount of intellectual property rights Disney will acquire that it can use for its current studio production and its future streaming services.
Hulu itself will not be able to compete with Netflix, but as Disney adds its own streaming service, I believe investor confidence will increase.
(Source: Wikimedia Commons)
Launch of Streaming Service in 2019
Disney is launching its own streaming service in 2019, targeted at families with no R-rated movies. While it is going to be hard to beat Netflix’s outstanding growth immediately, it has the potential to dominate the streaming market space.
In terms of subscribers, more adults are switching from cable services to streaming services. People who cancelled cable or satellite hookups will hit 33 million this year, a 32.8 percent increase from 2018, according to the research firm eMarketer. Many of them are young adults familiar with the Internet, who will be creating new families and will look into Disney streaming channels.
After launching its own streaming service, all Walt Disney Studio releases would likely flow from Netflix to its own streaming platform. This poses a threat to Netflix given Disney’s popularity in the movie industry.
ESPN and ESPN+
ESPN’s subscriber count has dwindled year after year. Since 40 percent of Disney’s profits come from its cable networks, and ESPN brings in the largest portion in that segment, this is a considerable call for caution. Despite the falling subscriber count, Disney earnings continue to grow, mainly due to the strength of its movie sales. ESPN+ is Disney’s recently launched sports-focused streaming service and this service is already seeing “strong” conversion rates from free trials to paid subscriptions.
Studio: Q3 2018: $2.88 billion vs. $2.89 billion forecast by StreetAccount
Disney’s studio revenue grew 20 percent year over year, driven by strong box office performances of Marvel’s “Avengers: Infinity War” and Pixar’s “Incredibles 2.” “Avengers: Infinity War” became the 4th highest grossing movie of all time.
Moving forward, investors can expect bigger hits in 2019 with Captain Marvel on March 8 2019, Avengers 4 on May 3 2019, Toy Story 4 on June 21 2019 and Star Wars: Episode IX in December 20 2019. The more hit movies that Disney comes up with, the stronger its licensing business becomes.
Though the increasing adoption of cord-cutting is affecting Disney’s Media Networks business segment, Disney’s hit movies are likely to balance it off until Disney’s own streaming service come into effect.
(Source: Flickr)
Parks and resorts: $5.19 billion vs. $5.28 billion forecast by StreetAccount
Revenue and income for the Parks and Resorts segment are up double digits for the nine months of fiscal 2018. This segment makes up around 32% of Disney’s revenue. Disney has said the surge in operating income was driven by higher ticket prices and increased spending on food and merchandise in its theme parks. Given the expansion of Star Wars World in late 2019, we expect this segment to grow. After all, nothing can replace the Disneyland experience.
Consumer and interactive: $1.00 billion vs. $1.11 billion forecast by StreetAccount
This is the smallest revenue segment and I expect it to rise together with the growth in parks and resorts and blockbuster movies.
Technical Analysis
The 50 day short term and 200 day long term moving averages (MA) show bullish signs for DIS. With stock price over both moving averages and the 50 day MA over the 200 day MA, stock price is expected to rise.
(Source: Yahoo Finance)
ADX is currently at 40, indicating a relatively strong trend in the price.
(Source: Yahoo Finance)
MACD, however, shows a bearish crossover.
(Source: Yahoo Finance)
Analyst Recommendation
(Source: Yahoo Finance)
The current analyst consensus rating supposed at 2.4 on company shares (1.0 Strong Buy, 2.0 Buy, 3.0 Hold, 4.0 Sell, 5.0 Strong Sell).
Conclusion
I don’t expect Disney stocks to rise much in the short term. Given the huge amount of money they intend to spend on Fox, Hulu’s continuing losses and decreasing subscribers for ESPN, I expect Disney’s revenue for the next quarter to remain the same or dwindle. However, Disney’s 2019 blockbuster movies should continue to fuel a strong 2019. I do suggest a long-term hold for Disney until the streaming service is up. Even so, it will take time to garner enough subscribers and gain its foothold in the streaming industry. “Rivers know this: there is no hurry. We shall get there some day.” – Winnie-the-Pooh
Current I Know First Bullish Forecast
I Know First’s DIS forecast is almost all bullish. On August 14th, 2018, I Know First issued a bullish forecast for DIS with the one month signal of 7.26 and predictability of 0.32. The long term signals is even stronger at 140.27 in the 1 year forecast.
How to read the I Know First Forecast and Heatmap
Past I Know First Success with DIS
On April 29, 2018, the I Know First self-learning algorithm showed a bullish outlook on DIS over a 3 month period with a signal of 2.53 and predictability of 0.37. In accordance with this prediction, DIS increased by 11.75% over this time period, highlighting I Know First algorithm’s success with predicting DIS’s stock in the past.
How to read the I Know First Forecast and Heatmap
Please note-for trading decisions use the most recent forecast.
