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Earnings: Where’s the Magic? Soft DIS Earnings; ESPN Viewership?

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November 10, 2016
Disney releases Q3 market profits; ESPN subscriber base dwindles.

If this feels like déjà vu all over again, it’s okay. Versions of this Disney (DIS) earnings story have shown before, but this time it may not be so magical for the spot that touts itself as “the happiest place on earth.” Ahead of quarterly results after the bell Thursday, analysts are saying they want to know what might be the real story behind the dwindling subscriber base at ESPN, historically a cash cow at DIS.

Last week, Nielsen, the ratings tracker, reported that some 621,000 subscribers scratched ESPN in October. That’s been widely attributed to the consumer movement to “cut the cord,” industry speak for the drive away from traditional and cable viewing to online streaming and pay-as-you-go options. But 621,000 in one month is quite a drop.

DIS immediately protested, challenging Nielsen’s data that DIS said didn’t include numbers from digital multi-channel video programming distributors (DMVPD) such as Sling TV, PlayStation Vue and similar platforms, according to the company.

“The Nielsen numbers represent a dramatic, unexplainable variation over prior months' reporting, affecting all cable networks,” DIS said in a statement. “We have raised this issue with Nielsen in light of (its) demonstrated failures over the years to accurately provide subscriber data. The data does not track our internal analysis nor does it take into account new DMVPD entrants into the market.”

But last Friday, according to a CNBC report, Nielsen finished its review of the data and found the figures to be “accurate as originally released.”

But analysts may still be asking what the real numbers are. It’s been no secret that ESPN has been losing subscribers this year—that has been well documented in DIS’ quarterly reports—but is this a faster-flowing gush? What’s the outlook?

A year ago, DIS said that its theme parks and movies were helping to fill the void of ESPN’s shrinking subscriber base. Is that still the case? The company’s theme parks division is projected to turn in lower revenues, but movies are forecast to be a bright star. Last week’s opening of “Doctor Strange,” a blockbuster hit in its opening weekend, is a testament to the strength of the movies division, say analysts, who want to know what the holiday outlook is for ticket and toy sales.

At Thomson Reuters, analysts are forecasting, on average, earnings of $1.18 a share, down from $1.20 a share last year. Topline sales are projected to slide to $13.47 billion from $13.51 in the year-ago period.

Short-term options traders have priced in a potential share price move of 2.5% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

There has been options activity in the at-the-money 95 puts and calls, as well as the 100-strike calls. The implied volatility is at the 36th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

DIS, 12m, 2015-16

FIGURE 1: WHERE’S THE MAGIC?

Hurt by a slumping subscriber base at ESPN and other sectors, DIS shares have taken a drubbing since the beginning of the year, down roughly 10% since the start of the year, and nearly 19% over the past 52 weeks. This week shares edged above their 50-day moving average. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.