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Five things to look for as Disney releases second-quarter earnings

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Walt Disney Co (NYSE:DIS) releases its second-quarter results on Thursday at 4:30pm ET, alongside a webcast investor call.

Whilst it has been a challenging year amidst the pandemic Disney is still the world’s largest media conglomerate, so it plainly has a robustness that other companies don’t.

So, what should those watching the Mouse House be looking out for?

Marvellous streaming

Disney+ has long been touted as the most likely ‘Netflix-killer’ among the streaming industry’s second movers – and stats to date back up this favouritism shown by market pundits.

The streaming market is becoming increasingly fractured with cable network operators launching their own platforms rather than selling rights into the likes of Netflix and Amazon – notably the rollouts of Paramount+ (ViacomCBS), HBO Max (Warner) and Peacock (NBCUniversal).

Disney nonetheless has a robust foothold and benefits from its strong brands and IP, as well as a significant head start and first mover advantage amongst the ‘studio streamers’.

Disney+ has just over 100mln users subscribers, whilst separate and Disney-owned Hulu has around 40mln, on top of that the ESPN+ sports streaming service is estimated at just over 12mln subscribers.

Streaming generally – and Disney+ specifically – has been a haven for the group during the pandemic, offsetting at least a portion of the losses arising elsewhere in the business.

Experts believe subscriber volumes can keep rising too as the company pursues its global roll-out, as several territories in Eastern Europe and Asia have yet to be addressed.

Content always king

The content offering was also bolstered recently by the consolidation Disney’s extended library via ‘Stars’ (which hosts IP acquired and retained following the Fox takeover). At the same time it is pushing the promotion of ‘bundle’ deals combining one or both of ESPN+ and Hulu along with primary Disney+ subscriptions.

Disney’s headlines in the streaming business will likely be driven by the group’s ‘big four’ brands: Disney, Marvel, Star Wars and Pixar. Column inches may also be captured if there are any reveals relating to the upcoming movie slate for 2022 and beyond.

The second-quarter performance is likely to be enhanced by the release of Marvel’s WandaVision and the start of the Falcon and the Winter Soldier series. Both of which achieved both pop culture acclaim and excitement, and one would expect drove new subscription volumes.

Post-quarter, Disney began the latest Star Wars series – animated weekly ‘The Bad Batch’ – and next month Loki, the next high-profile Marvel series, drops on Disney+ too.

The Walt Disney Animation unit in March put out Raya and the Last Dragon with a limited theatre and on Disney+ Premier Access (the pay-per-view section within the streaming platform).

Curiously for investors, the performance and strategy for Premier Access could be focal point going forward as they eye the progressive reopening of cinema theatres.

Cinema re-opening

The wider international reopening of cinemas will be closely watched and the box office performance scored against Premier Access – not least because Disney has a stacked movie slate for the next eighteen months or so as they clear the COVID-disrupted backlog.

It starts with May’s Cruella live action feature staring Emma Stone, due in late May, and then June sees the next big Pixar feature with Luca due for release in theatres and Premier Access.

Marvel has three movies scheduled (four if you include the new Sony produced Spiderman sequel) before the end of 2021.

Prior to the pandemic such movies saw stand-out commercial success at the box office, with US$1bn of takings not uncommon in the recent past. How lucrative the new home-plus-cinema model is remains to be seen.

Parks and vacations

Disney’s theme park business has been losing money hand over fist during the pandemic.

In February, the company’s quarterly results showed a US$2.6bn dent in the parks business, amidst ongoing disruption, sporadic hotel closures and reduced capacities.

The Orlando parks and a number of the Orlando hotels reopened to guests in during 2020, as did Shanghai and Hong Kong Disney parks. During the second quarter Disney re-opened Disneyland in California, on April 30, meanwhile Disneyland Paris has yet to be reopened.

Whilst most Disney parks are now open they continue to operate at reduced capacities, several hotels and restaurants remains closed.

Disney’s cruise business is still materially closed, with the latest round of suspensions affect most vacation routes out until either July or October.

Commentary around the recovery and reboot of tourist-focussed business will be influential for the market’s outlook.

When will dividends return?

Disney’s dividend was suspended quickly after the onset of the pandemic to conserve cash.

Commentary around the timeline for resuming of dividends will be a hot topic for investors though market watchers reckon it may be too early in the company’s pandemic recovery.

At the end of the first quarter it had US$31bn of cash and receivables and US$52bn of debt, and in the three month period it generated only US$77mln of positive cashflow.

It may need to have been an especially lucrative trading period for dividends to return so soon.

Vietnam Holding shares trading at a 13% discount, notes finnCap

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