There is a lot happening for Disney (DIS) right now. Not only did it report solid earnings growth in its fiscal second-quarter 2019 results, but the announcement of various cinematic titles planned over the next few years, combined with its forays into taking on the streaming business, lead me to believe that this is one of the few names in the market right now that really carries some weight behind it.
Fiscal Q2 revenue increased 3% year over year to $14.92 billion. Net income (from continuing operations) increased 85% to $5.43 billion. Broken down on a diluted basis, Disney reported earnings of $3.53 per diluted share. That's an 81% increase year over year. It should be taken into account that this quarter included items related to various one-time events. The most significant of these is most certainly the company's completed acquisition of Twenty-First Century Fox.
In turn, Disney also gained a controlling interest in Hulu, and there are revenue increases associated with the addition of these assets. If you exclude these items, earnings per share actually experienced a 13% decrease year over year to $1.61 vs. $1.84 per diluted share. These results beat a lot of estimates on their adjusted earnings of $1.58 per share, and the stock is experiencing positive feedback after hours. Disney's $14.92 billion in revenue also exceeded expectations of $14.36 billion. Considering the costs and moves being made by the company, I am not concerned by the adjusted pullback.
The one thing that might be a detractor here is the very strong performance of the stock over the course of the first quarter of 2019. It may seem an irony to call a strong performance a "detractor," but one must take into consideration the fact that the bullish run might have factored in much of the good news.
Though I understand risk aversion, especially in a market at basically all-time highs, I personally think the caution would be a mistake. Disney is doing things within streaming, as well as theatrical production, that are continuing to make it a force to be reckoned with (has it ever not been?). Looking forward, I think we're certainly going to see some great results within their "Studio Entertainment" segment, thanks in large part to the success of "Avengers: Endgame."
The studio segment was actually a weak point for Disney in the fiscal second quarter; but that was due to the tough comparison to last year's performance of the "Black Panther" film, as well as results from the last Star Wars movie.
Disney also recently announced plans for three more Star Wars films following the upcoming conclusion to the current new trilogy. Barring the obviously weaker performance from "Solo: A Star Wars Story," I think this genre is a gold mine for Disney and offers the potential for big revenue over the coming years. It also has control over the planned "Avatar" sequels. Going off of the remarkable financial performance of the first movie (along with James Cameron's track record at the box office), these are promising potentialities for Disney.
Looking past the epic potential at the box office, Disney's opportunities within streaming are huge. The value of its new controlling interest in Hulu (I believe they have 60%), could turn it into the next Netflix (NFLX) , if not more. The company's growth is rapidly outpacing Netflix (yes it's easier for a smaller company to do so).
Now past 28 million subscribers, Hulu's 3.8 million new consumers drastically outperformed Netflix's 1.74 million gained in the first quarter of the year. I'm sure many are thinking the same thought I had initially. So many people already have Netflix, and they simply added Hulu to their monthly bills. That is very possible, but consider the long-term competition. As the streaming wars continue to heat up, and many more names like Apple (AAPL) get involved, I think consumers are going to become less inclined to hold subscriptions with every service.
Both Hulu, and Disney's new streaming service called "Disney+" (available later this year) hold lower subscription prices than Netflix by more than half. As more and more streaming formats develop, I think price/quality is going to become more and more relevant. Netflix makes great content, but reports consistently poor cash flow to do it. Though fiscal Q2 results included weaker cash flow, Disney has a time-proven ability to create strong content at a profit -- on both the income and cash flow statement.
To me, the fiscal second quarter is a minimal piece of information within a much bigger story. Disney is at the forefront of theatrical film right now. Who better to stake their claim on the streaming content world? I'm of the opinion that Disney will be a name to own for years to come. Despite the market's highs, I consider Disney a buy.