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Disney Stock Surges 13% on Earnings and its Epic Games Deal

By:Thomas Westwater

Earnings per share came in at $1.22, beating estimates of $1.00, while revenue was $23.5 billion

  • Disney stock is surging on better-than-expected Q1 results.
  • Streaming metrics at Disney have improved despite losing subscribers.
  • Disney is joining the world of gaming with its Epic Games Acquisition.

Disney release earnings, stock rockets higher

Disney (DIS) surged by nearly 13% today after the media and entertainment conglomerate reported better-than-expected first-quarter earnings yesterday after the bell. Earnings per share (EPS) came in at $1.22 on an adjusted basis, beating estimates of $1.00. Revenue came in at $23.5 billion. Disney will increases its dividend as well.

The company also deviated from its recent practice of not providing guidance, saying that full-year fiscal earnings per share would rise by 20% or more to about $4.60 per share from 2023. Disney is also on track to meet or exceed the annual cost-saving target of $7.5 billion by fiscal year 2025. Theme parks revenue increased thanks to improved results in Asia, with Hong Kong Disneyland and Shanghai driving performance improvements. Park and Experiences saw 10% year-over-year operating income growth.

Disney’s streaming business, which includes Disney+ and Hulu, was nearly a wash, with Disney+ losing 1.3 million subscribers and Hulu gaining 1.2 million during the quarter. That was in-line with company guidance on subscriber growth. Direct-to-consumer (DTC) streaming operating losses improved by almost $300 million in the quarter thanks primarily to price increases, and despite the net subscriber loss, average revenue per user (ARPU) rose $0.14 from the prior quarter, according to Disney’s financial reports.

Disney also assuaged investors’ concerns about its embattled ESPN business, announcing a timeline for its ESPN streaming service to launch in 2025. Bob Iger, chief executive officer (CEO), said on a conference call that it would launch in the fall of 2025. The ESPN product will include sports betting, a statistics and a fantasy sports suit, and it will also be separate from ESPN+.

The results also help Disney in its fight against Trian Fund Management, an activist investor battling to attain board seats and change management’s trajectory. Iger pushed back against those efforts recently, and the stock price reaction to this earnings report should help management keep those activists at bay for now because the depressed stock price was one of the main arguments in favor of Trian and other activist investors.

Disney plunges into the gaming world with Epic acquisition

Disney announced a new relationship with Epic Games, stating that it would acquire a $1.5 billion equity stake that could help fund the launch of a “groundbreaking new games and entertainment universe.” Disney already had a good licensing relationship with Epic, recently collaborating with the game studio to bring characters in the Star Wars universe to Fortnite: Battle Royale, which should help to drive synergies within the partnership.

Trading Disney

Disney stock is trading at one-year highs around the 111 level and is more than 40% above its 2023 lows set back in October. The implied volatility rank (IVR) is 29.4, with the March 15 expiration showing an implied move of +/- 5.33 points. If traders expect this move to lose steam or fade to the downside, they could sell a call spread.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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