Walt Disney Co.'s shares fell in trading Friday after the company reported declines in a key source of its fiscal first quarter advertising revenue.
THE SPARK: The company reported Thursday that its net income increased 14 percent in its fourth fiscal quarter as consumers spent more at its theme parks and on its cruise ship. Its earnings were in line with analyst expectations.
Walt Disney also said that its advertising is down for the first quarter as people tuned into election coverage rather than Disney channels such as ESPN. This is particularly bad news for ESPN as it faced an easy comparison to last year when its advertising revenue was down due to an NBA contract dispute.
THE BIG PICTURE: ESPN is Disney's flagship sports network and represents a significant revenue stream so declines there are cause for concern.
This also represents a change in tone from Disney management, which was very bullish on its prospects when talking to investors during prior earnings calls.
THE ANALYSIS: Janney Capital Markets analyst Tony Wible downgraded his rating on Disney's shares to "Neutral" from "Buy" Friday. He said the slowdown in advertising and reinvestment of park profits would hurt the company's near-term earnings growth.
Wible said he expects the company's shares will suffer until advertising recovers or the company gets closure to recapturing returns on its recent investments.
SHARE ACTION: Shares of the company fell $2.66, or 5.3 percent, to $47.38 in midday trading. Its stock had been on a steady climb upward this year until peaking at $52.97 earlier this month.