Here’s Why Disney (NYSE: DIS) Is Set To Sparkle

Shares of Disney (NYSE: DIS) look set to end the week on a high as the street digests their Q3 earnings report which was released after Thursday’s session ended. Both the top line and bottom line numbers comfortably beat analyst expectations, with GAAP EPS 60% higher than the consensus and revenue 44% higher than the same period last year. Disney Plus subscriber numbers were also hot, coming in at 116 million versus the 112.8 million that had been estimated. 

Bob Chapek, CEO, didn’t hold back on the positivity, saying “we ended the third quarter in a strong position, and are pleased with the Company’s trajectory as we grow our businesses amidst the ongoing challenges of the pandemic. We continue to introduce exciting new experiences at our parks and resorts worldwide, along with new guest-centric services, and our direct-to-consumer business is performing very well, with a total of nearly 174 million subscriptions across Disney+, ESPN+ and Hulu at the end of the quarter, and a host of new content coming to the platforms.”

Solid Momentum

There’s a lot here for investors, both new and old to be excited about. The company’s parks, experiences, and products segment have made a much-awaited return to profitability for the first time since the COVID-19 pandemic started. Their relatively recent pivot into on-demand streaming continues to pay dividends, with the company’s total addressable market now above 1 billion people for the first time ever as a result. This segment includes the Disney Plus, Hulu, and ESPN Plus business lines. They’ve already more than 170 million subscribers and expect this to grow by more than 50% by 2024. 

Disney’s theme parks continue to reopen after being sorely missed for much of last year, but there’s still a lot of ground to be made up. They brought in $4.3 billion in revenue last quarter, substantially more than the $1 billion over the same quarter last year, but not at quite the same scale as the $6.6 billion that was generated in 2019. Risks and headwinds to this recovery remain in the form of the Delta variant which refuses to go away. Chapek spoke to this in the post-earnings call as well, saying “we did not anticipate, nor did I think anybody— the resurgence of COVID with the Delta variant that would have such a significant impact on the marketplace.” Still, it has to be said that pretty much everything is moving in the right direction for Disney. 

Shares of the entertainment titan jumped 5% in after-hours trading and looked to be holding onto those gains in Friday’s pre-market session. Assuming they close out the week at or above this level, it will be their highest close since April. The solid numbers reiterate the bullish potential that the likes of Morgan Stanley were highlighting only a few weeks ago. 

Getting Involved

In a note to investors in the middle of last month, they reiterated their Overweight rating on Disney shares as they traded sideways while the major indices were logging fresh all-time highs. Analyst Benjamin Swinburne and his team wrote that "while near-term (FH21) consensus Disney Plus net adds appear optimistic, we remain confident in the '24 streaming guidance and raise FY22 EPS estimates on rapidly reopening Parks." Much of Swinburne’s bullishness stems from what he sees as a current theme of underappreciation of just how much room Disney’s streaming business has to grow. Their “underlying IP is called best-in-class to support long-term content monetization opportunities” and it’s not hard to see Disney stock hitting fresh highs if this potential continues to be realized. 

Investors getting involved or those thinking about adding to an existing position have some favorable support around the $170 mark to work from. The downtrend from March’s all-time high will likely come into play in the next few sessions and should help create a tightening wedge. This could precipitate a breakout and with this week’s earnings report and all the right kind of momentum behind them, you’d be hard pressed to say any breakout won’t be to the north.