Earnings preview: Expect a blockbuster show from Walt Disney in Q3

Entertainment giant Walt Disney Company (NYSE: DIS) is scheduled to publish its third-quarter results Tuesday after the closing bell. Market watchers forecast a 41% growth in revenues to $21.48 billion for the quarter. However, earnings are seen dropping 6% to $1.75 per share. (check for live earnings updates)

Disney is currently riding on the success of Avengers: Endgame, the blockbuster movie from Marvel that was released in April. It is touted as the highest-grossing movie ever. Subsequent releases like Aladdin and the latest Toy Story franchise boosted the global box office revenue. It gave the much-needed push to the Studio Entertainment segment, which had a weak start to the year.

The results could also benefit from the steady expansion of the cable and broadcast division, which includes ESPN. With Disneyland attracting more visitors after the recent additions, Parks, Experiences & Products might add to the top-line growth. Meanwhile, margins might be hit by heavy spending on the expansion of the direct-to-customer business, restricting the bottom-line growth.

Related: Netflix stock plunges on big miss in subscriber additions

In the second quarter, revenues rose 3% to $14.9 billion, beating the estimates. The uptick was driven mainly by the strong performance by the Parks and Direct-to-Consumer segments, which was partially offset by lower Studio Entertainment revenues. At $1.61 per share, adjusted earnings came in above the market’s prediction but dropped year-over-year, reflecting the impact of investments in the new streaming service.

In April, the entertainment powerhouse announced the launch of Disney Plus, marking its entry into the lucrative video streaming space. The initiative came after Disney spiked its stake in leading streaming platforms Netflix (NFLX) and Hulu, while also gaining access to the titles of Fox (FOXA) through a merger deal earlier this year.

Also see: Walt Disney Q2 2019 Earnings Conference Call Transcript

The company is planning to stream Avengers: Endgame exclusively on Disney Plus towards the end of the year. In the long term, growth will depend a lot on how consumers respond to the new service, though it is well-positioned to compete effectively with the current industry leaders.

Last week, Disney shares climbed to an all-time high, after gaining steadily since the beginning of the year. In the past twelve months, the stock advanced 26%, outperforming the market.

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