Old television program on the Disney television in the 50's Prime Time Cafe

Disney’s Q3 Earnings Report: Two Reasons It’s down and One Big Reason for Hope

The Walt Disney Company has long been a solid performer for investors.  This is probably still the case, but investors may be a bit disappointed with Disney’s third-quarter earnings report from this week.

Disney’s Q3 Earnings Report

Overall, Disney’s stock is trading at the lowest it has in two months.

Disney’s earnings per share was $1.35, much lower than the expected $1.75 and down a significant 27.8% from the year-ago quarter.  Revenues increased an impressive 32.9% from the year-ago quarter to $20.25 billion, but was still lower than the expected $21.68 billion.

Attendance at the US theme parks was actually down 3% in the June-end quarter. When is the last time park attendance went down?  According to Bob Iger, CEO – Annual Passholders were worried about crowding and costs. Still, guest spending is up 10%.

Still, there was plenty of good news.

Guest spending, per person, was up 10% on due to more expensive tickets plus money spent on food, beverage, and merchandise.

The Parks and Resorts division was up 7% from $6.1 billion to $6.6 Billion even after a $1 billion investment in Star Wars: Galaxy’s Edge, which opened in Disneyland in May and will open in Disney’s Hollywood Studios at the end of this month. Operating income was also up 4% in this division.

Two Reasons for Decline

Disney has been investing plenty of money in its business and the cost are significant.

Disney’s Direct-to-Consumer operating costs are up significantly from $168 million to $553 million. Disney says that this will only get worse, increasing to a Disney-estimated $900 million before Disney+ is released on November 12th.

A second reason area of investment is the recent purchase of 21st Century Fox for $70 billion.  Fox’s operating income decreased by $300 million from quarter three in 2018.

One Big Reason for Hope

Disney's Disney+ streaming service may rescue the company even after being a serious drain on resources at present.
Disney’s Disney+ streaming service may rescue the company even after being a serious drain on resources at present.

The Walt Disney Company is going through some growing pains right now, but some industry watchers say that Disney could experience a financial resurgence by 2024.

In time, Disney will recover from their recent investments and enjoy the fruits of their labor.

When Disney+ hits streaming devices on November 12th, there will be a bundle option with Disney+, ESPN+, and ad-supported Hulu for just $12.99, which is just a few dollars more than customers are currently paying for Hulu. It’s really a no-brainer to upgrade. Another reason this division will support The Walt Disney Company in the future is because they’re not only introducing their own streaming service in combination with an already very popular one, but they’re also pulling their content from Netflix. This means that Disney-owned content will only be available through Disney-owned streaming services.

Finally, Disney’s Hollywood Studios’ version of Star Wars: Galaxy’s Edge will open in just a couple weeks, and Epcot is next up for a makeover. When that is complete, all four Florida parks will be updated, and attendance and revenue should soar – especially leading into the Disney World’s 50th anniversary – while operating costs will be held in check.

Are you hopeful for Disney’s future earnings?