Disney Needs ESPN In The Game -- Ahead Of The Tape
February 09 2016 - 2:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 2/9/16)
By Steven Russolillo
The force may be with Walt Disney Co., but the media
conglomerate needs more than that.
The cord-cutting phenomenon and its worrisome impact on ESPN
have overshadowed success from Disney's "Star Wars" bonanza. Shares
have been on a roller coaster since last summer and are now about a
quarter off their peak.
When Disney reports fiscal first-quarter results Tuesday, the
stock's next move likely will be dictated by what it says about the
sports network.
Analysts polled by FactSet expect earnings for the quarter
through December of $1.45 a share, up 14% from a year ago. Revenue
is forecast to have risen 10%. While Disney rarely misses
estimates, the bigger issue is cable. Concerns are justified.
ESPN is the most important part of Disney's "media networks"
business, which accounts for 52% of operating income in fiscal
2015. While that is by far Disney's largest unit, its contribution
has been falling for four consecutive years. Analysts expect worse
to come.
In November, Disney said it lost three million ESPN subscribers
within a year. That followed an earlier warning in August. As ESPN
sheds subscribers, Disney earns less from pay-TV operators that
carry the content.
The unparalleled lure of live sports programming gives Disney
strong bargaining power. But contractual obligations make a pure
ESPN online offering problematic. At the same time, rising cable
costs have prompted more consumers to either cut the cord entirely
or move to "skinny" bundles of channels that sometimes exclude
ESPN.
J.P. Morgan forecasts operating income from cable networks will
decelerate, pushing the broader media segment below half of total
operating income by 2017. As recently as 2011, it was 69%.
Yet, even after Disney's recent swoon, the stock still trades at
15.6 times projected earnings over the next 12 months -- right
around its 10-year average. That isn't enough of a bargain.
This is the investing equivalent of "fourth and manageable." The
smarter move here is to punt rather than go for it.
(END) Dow Jones Newswires
February 09, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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