Dark Phoenix Torches Disney’s Earnings, But Investors Can’t See the Endgame
Dark Phoenix Torches Walt Disney
The Walt Disney Co. (NYSE: DIS) is known for gobbling up franchises.
When Disney consumed both Marvel and Star Wars, there was much gnashing of teeth from both respective fanbases.
But the results have been stellar … if you ignore Solo: A Star Wars Story. (Seriously, you had plenty of good source material; how do you screw that up?)
X-Men fans are hoping Disney will do the same for their ailing franchise. How bad is X-Men doing? Dark Phoenix, the final X-Men movie from Twenty-First Century Fox, torched Disney’s recent earning’s report.
Disney reported third-quarter earnings of $1.35 per share on revenue of $20.24 billion. Analysts expected earnings of $1.76 on sales of $21.68 billion. Ouch.
Studio Entertainment revenue was the biggest drag. Despite Avengers: Endgame raking in $2.79 billion at the box office, Fox’s movie unit was a major burden on sales.
Dark Phoenix wasn’t solely responsible for the miss. I mean, Fox had other stellar movies, such as Stuber and The Kid Who Would be King — you all saw those, right? Oscar quality, all of them.
Disney’s earnings miss was also partly caused by increased direct-to-consumer spending — i.e., online streaming. The company is ramping up Disney+ and ESPN+ and doled out millions to acquire the rest of Hulu from Comcast. As a result, operating losses jumped to $553 million.
These were not the results investors were looking for. But should you really move along?
Dark Phoenix was the latest in a long string of really bad X-Men movies. I mean really bad.
But were Star Wars and Marvel any better before Disney acquired them? Endgame and The Last Jedi are proof that much better movies are down the road for the now unified Marvel multiverse.
The big news that every investor seems to be ignoring, however, is the new Disney+ bundle. On November 12, you will be able to subscribe to Disney+, Hulu (with ads) and ESPN+ for $12.99 per month. And, if Disney is smart, it will include an ad-free Hulu bundle for only a few dollars more — less than $20 per month, preferably.
This is big trouble for Netflix Inc. (Nasdaq: NFLX) and any other major online streaming service: Disney’s impressive catalog, plus Hulu and sports for the same price as Netflix’s standard streaming plan.
So, I’m calling this quarter a blip on the radar as Disney begins putting all the pieces it acquired this year into play. It’s weird to call record profits a blip, but that’s the market we’re in right now.
Expect DIS shares to be considerably higher this time next year.
The Good: Healthy Results
Good news came from an unlikely place this morning. Struggling CVS Health Corp. (NYSE: CVS) is struggling no more.
I mean … I don’t shop there, but apparently many of you do.
The company swung to a massive net profit of $1.49 per share from a loss of $2.52 per share last year. Adjusted earnings topped the consensus estimate by $0.20 per share, and revenue soared 35% to $63.43 billion.
The results were aided by $17.4 billion in revenue from the company’s health care unit, which acquired insurer Aetna last year.
All that is well and good, but CVS could save even more money … by using less paper and toner for its receipts. Seriously, you could wrap Egyptian mummies with just one transaction.
The Bad: Unshipping FedEx and Amazon
This morning, FedEx announced it’ll end its ground shipping relationship with the online retailer. That’s a shame, really.
They were a really cute “ship.” Amazon has packages, FedEx ships packages. It was a match made in heaven.
But FedEx no longer meets Amazon’s needs, apparently. The retailer is now shipping more of its own packages, leaving FedEx out in the cold.
“This change is consistent with our strategy to focus on the broader e-commerce market,” FedEx stated.
While the company doesn’t come right out and say it, we all know FedEx is hurting more on the inside after this breakup. But FedEx will be OK. The question remains: Can Amazon really handle all its own shipping? That remains to be seen.
FDX shares are down more than 2% on the news, while Amazon’s stock was relatively flat.
The Ugly: Bernstein Bears
OK, I can’t read “Bernstein” without thinking of those kids’ books with the bears. Anyone else? No?
Anyway, Bernstein came out with a nasty bearish note on Dropbox Inc. (Nasdaq: DBX) this morning. According to the ratings and research firm, “virtually all leading indicators of growth are negative.”
Tell us how you really feel, Bernstein analyst Zane Chrane:
“App monthly active users, daily active users, app downloads, number of app sessions, total time spent in app and Google searches have all been declining in recent quarters while these same data for major cloud vendors have been much more positive.”
That’s harsh. Chrane went on to initiate coverage on DBX at underperform with a $19 price target — 12% below yesterday’s close.
It’s been a little over a year since Dropbox’s initial public offering (IPO), and the shares have come nowhere near the IPO price since.
It just goes to show that you need a real expert for advice when it comes to IPO investing. Click here to get your own IPO expert.
Here’s another good one from Hedgeye. It’s particularly applicable to Walt Disney stock today. The company posted record profits, but they just weren’t up to “expectations.” Time for a beatdown.
Yoo-Hoo! I’ll Make You Famous
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