Media giant Disney (NYSE:DIS) is set to report third-quarter numbers after the bell on Tuesday, August 6. And while bulls are hoping for another magical quarter to spark a big rally, the reality is that DIS stock likely won’t budge much following this earnings report.
In the big picture, the Q3 earnings report isn’t all that important for Disney — or Disney stock. First, this quarter will likely be more of the same — strong box office and parks performance, weighed by persistent cord-cutting weakness. Nothing in the report will be jaw-dropping or eyebrow-raising. It will all be par for the course.
Second, the entire Disney growth narrative is building towards the launch of Disney+ in late 2019. Investors likely won’t trade DIS stock much ahead of that narrative changing catalyst. Instead, they’ll hold through the bumps, wait for the catalyst to arrive, see how it plays out, and then DIS stock will start to make big moves again.
But, until then, investors should expected rather muted moves from Disney stock.
As such, Q3 earnings project to largely be a non-event for DIS stock. Long term, this stock is going higher. But, until Disney+ launches, DIS stock will likely be stuck in neutral around the $130 to $150 range.
Q3 Earnings Project To Be Very Normal
Disney’s Q3 earnings report will be very much like all of its previous earnings reports. The box office and parks businesses will be very strong, while the media business — hampered by cord-cutting headwinds — will remain depressed.
On the box office side, Disney is absolutely dominating the box office this year. Not only is the company behind all of the top movies in 2019, but it’s only August, and Disney has already set the record for global box office haul in a year. Further, Disney isn’t done yet. New Frozen and Star Wars movies in the last few months of 2019 promise to boost Disney’s box office numbers even more.
On the parks side, Disney’s parks business has long been a steady and stable grower, characterized by steady traffic growth, steady per capita spend growth, steady revenue growth, steady margin expansion, and steady profit growth. All of this steadiness appears to have persisted in the summer months. Peer theme park operators Sea World (NASDAQ:SEAS), Six Flags (NASDAQ:SIX), and Cedar Fair (NYSE:FUN) have all either hinted at or directly reported huge traffic growth this summer. The implication is that Disney parks were also very busy in the first part of summer 2019.
The opening of the new Star-Wars themed land in Disneyland and upcoming opening in Disney World should also help DIS’s park business through the rest of the year.
Meanwhile, cord-cutting trends haven’t let up recently. Nor will they any time soon. But Disney’s media business has reported stabilizing results. Thus, this quarter’s media numbers will likely be bad, but not awful — which is on-par with what the company has reported over the past several quarters.
All in all, the Q3 earnings report projects to be rather normal, and rather normal likely won’t spark either a big rally or a big selloff in DIS stock.
Disney+ Is What Matters
Zooming out, what really matters to the Disney growth narrative is Disney+. The launch of this service in November 2019 promises to be a game-changing catalyst for DIS stock. Either the service does really well, and Disney has found a solution to its cord-cutting woes through sustained big growth in the streaming market. Or the service doesn’t do really well, and Disney’s cord-cutting woes will persist.
Either way, the Q3 print isn’t terribly important to the big picture growth narrative here. Disney+ is. As such, until Disney+ launches, I don’t think DIS stock will do much besides bounce between $130 and $150.
I fully expect Disney+ to be a big hit. In short, the platform has enough content firepower to attract subscribers in bulk, and it has generated enough hype pre-launch to attract subscribers quickly. It’s also cheap enough to gain mainstream traction. Net net, the launch of Disney+ during the 2019 holiday season will likely be a huge success. That huge success should shoot DIS stock to fresh all-time highs by the end of the year.
Bottom Line on DIS Stock
DIS stock has healthy long-term growth potential here because the company is on the verge of a game-changing catalyst which will breathe life back into the company’s core growth narrative. But ahead of that catalyst, the stock likely won’t move much. Not even on an earnings report.
As such, Q3 earnings project to be a non-event in the big picture. But, if DIS stock drops on worse-than-expected numbers, that’s probably a buying opportunity ahead of the launch of Disney+.
As of this writing, Luke Lango was long DIS.
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