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Will Solid Content Drive Discovery's (DISCA) Q3 Earnings?

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Will Solid Content Drive Discovery's (DISCA) Q3 Earnings?

Discovery's (DISCA) third-quarter 2018 earnings are likely to benefit from widened product portfolio, international expansion and partnerships.

Discovery DISCA is scheduled to report third-quarter 2018 results on Nov 8.

The company’s earnings beat the Zack Consensus Estimate in two of the trailing four quarters. The average four-quarter negative surprise was 1.24%. In second-quarter 2018, adjusted earnings of 66 cents per share declined 2.9% from the year-ago period, while revenues surged 63% year over year to $2.845 billion.

The Zacks Consensus Estimate for third-quarter earnings has remained steady at 60 cents over the past seven days, indicating year-over-year growth of 39.5%. The consensus mark for revenues currently stands at $2.6 billion, indicating year-over-year growth of almost 57.2%.

Let’s see how things are shaping up for this announcement.

Discovery Communications, Inc. Price and EPS Surprise

Discovery Communications, Inc. Price and EPS Surprise | Discovery Communications, Inc. Quote

Key Factors to Consider

Discovery is well positioned to benefit from strength in its product portfolio, which is evident from the company’s increasing advertising and distribution revenues. Notably, revenues surged 63% year over year to $2.85 billion in the last reported quarter.

Additionally, Discovery's buyout of Scripps not only widened its product portfolio but also strengthened its international foothold. The company benefited from strength in Europe, Latin America and the Nordics in the last reported quarter.

Management expects to benefit from Europe and Latin America in third-quarter 2018 as well. Increase in digital revenues, higher contractual linear rates and new market launches are expected to drive revenues from Europe while higher pricing is likely to be the primary growth factor for Latin America.

Post Scripps Networks’ addition, Discovery increased its scope of cross promotional content, which is strengthening both its industry position and ratings. This is supported by the fact that the company currently has the “second largest share of TV viewing” after Comcast CMCSA owned NBC Universal, per the company, despite the dominance of video streaming companies like Netflix NFLX.

Discovery is also strengthening its direct-to-consumer service by expanding partnerships with the likes of ProSieben in Germany. The deal, which includes the Eurosport Player and ProSieben's maxdome VOD service on its streaming service, is expected to boost digital revenues for the to-be reported quarter. Notably, higher digital revenues from Eurosport Player contributed to strong growth in Europe in second-quarter 2018.

Moreover, Discovery’s partnerships with the likes of AT&T T, Hulu, Sling TV and Bilibili are helping it rapidly penetrate the online viewing audience. This is expected to drive advertising revenues. Notably, advertising revenues (54.9%) rose 94.2% to $1.563 billion.

However, acquisition related costs and continued investments in new businesses may hurt profitability. Moreover, loss of domestic subscribers does not bode well.

Discovery currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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