Bearish forecasters brace for Disney stock to tank as earnings expected to fall well short of Wall Street expectations again during Disney's next quarterly earnings call

We predict a bear market for Disney stocks with bad news from Disney's next quaterly earnings call on Aug. 9 
It's that time of the year again. The quarterly earnings conference call for The Walt Disney Company is again coming upon us next Tuesday on August 9, 2016, and many security analysts are already predicting that Disney's dismal financial performance in the last quarter will again repeat itself by falling well short of Wall Street expectations this quarter.

We expect a slaughter with Disney's stock next Tuesday
Wall Street securities analysts have set their earnings expectations for Disney at $1.61 per share and $14.17 billion in revenues, which are 11% and 8% higher than the company's third quarters earnings last year, but no one expects Disney to meet those lofty benchmarks on August 9th.

Where Disney is failing to perform will be in line with Disney's last quarterly earnings call where pretty much all its divisions were faltering and falling short of expectations all at once, except for its movie studios division.

That's not good news because Disney's studio division is only the third biggest revenue-generating line of business for Disney, accounting for only18% of Disney's revenues, well behind its Media Networks and Theme Parks & Resorts Divisions.

And there are the same tell-tale signs in other struggling divisions that now are showing cracks even in Disney's movie lineup, especially with the studio's long-struggling live action movie sector.


The ability for all movie studios to draw in the same old reliable audience demographics in the past to the movie theaters during the peak summer movie season seems to have dramatically shifted this year as the proliferation of live-streaming video piracy sites have threatened to disrupt the standard studio business model for distribution and exhibition.

ESPN continues to be a problem at Disney as executives have no answer to the
rising number of cord-cutters ditching the old cable subscription bundle
These days, the movie business is just too volatile to bank on alone for any one studio. Many would objectively call Disney's movie studios performance at the box office "mixed" at best this past quarter, during what is traditionally thought to be the movie industry's peak movie-going season.

Two out of three of Disney's summer tentpoles, Alice Through the Looking Glass and The BFG, have thus far floundered in a very big way during the all important summer movie box office derby. Thus, banking on Disney, solely based on good news from its movie studios, in and of itself, seems to be a bad idea for investors.

From what we understand, the areas of biggest concern for underperformance, however, are again from Disney's two largest revenue-generating divisions, its media networks and theme parks & resorts, which combined account for more than 70% of Disney's revenues.

ESPN continues to headline Disney's Media Networks woes as the company struggles to adapt the 24-hour, all-sports cable network to a rapidly changing digital media landscape, dominated by more and more cable cord-cutters progressively jumping off their cable bundle subscriptions, year after year as time goes on.


Disney's half-hearted attempts to placate critics with plans to offer only a limited version of ESPN online à la cart video service has drawn a lot of criticism from investors, particularly from a longtime Disney bull, Stifel Nicolaus, who sees ESPN declines in cable bundle subscribers dragging the company further down in future earnings.

Earnings calls for Disney CEO Bob Iger have been
getting progressively more hostile of late with near
investor revolts on conference calls as Disney stocks
have been stagnant for more than a year
Other Wall Street securities analysts, such as FBR Capital and Brean Capital, have similarly downgraded their forecasts on Disney stocks for similar reasons because ESPN alone still contributes 30%+ in operating income for Disney, suggesting the company is not as diversified as it might appear on paper.

Disney plans to only roll out a limited online live-streaming version of ESPN with only niche sporting events available to paying customers; however, they will not offer their marquee, professional and college live sporting events online, making ESPN's jump into the digital media landscape extremely tepid at best.

The prospects of the entire Media Networks sector is still extremely important to Disney's fortunes because it is still the single largest revenue driver for Disney, accounting for 42% of Disney's total revenues. For consumers to continue cutting the cord from the traditional cable bundle subscriptions in order to seek out cheaper alternative online media platforms with more convenience is just bad news for all of Disney's cable operations.

Take that with the fact that Disney's ABC TV networks is seeing most of its prime time shows with double digit drops in ratings compared to the same period last year, and you have the entire division tanking for Disney. The lukewarm reception to any of ESPN's over-the-top solutions along with network TV woes have simply not impressed Wall Street securities analysts thus far.

The Theme Parks & Resorts division shows similar bad signs of underperforming compared to the same time last year. Many news sources have already confirmed hotel bookings are down during this summer peak season to Central Florida's tourism industry, much in line with reports that attendance overall at Disney World is also significantly down during the crucial summer peak season.


Fears about the spread of the Zika virus in Florida, decreased international tourism from the U.K., Brazil, Argentina, and Venezuela due to unfavorable currency exchange rates and political upheavals, steep price hikes on Disney admissions tickets during peak seasons, more restrictions on annual passes during the summer, anticipation of the Summer Rio Olympics in Brazil, and fears of terrorism have taken their toll on not only Disney World Florida but also Disney Cruise Line which is also largely based out of Florida, serving many Zika-infested destinations in the Caribbean and Latin America.

The outbreak of the Zika virus in Florida is now threatening Disney World's
attendance numbers for possibly years to come
Disneyland California is also reporting many troubling signs of a slow-down in attendance, due to many of the same problems, especially from the Disney's miscalculations on it demand-based pricing scheme and increased restrictions on annual passes.

Management will be stopping all new shows from the 60th Anniversary Diamond Celebrationat Disneyland—including its Paint the Night electrical parade, Disneyland Forever fireworks show, and World of Color—Celebrate! fountain show—on September 5th as the cost overruns from those very expensive shows have not been able to bring in the sustained crowds to justify their continuation.

Disneyland is also cutting its sales staff as part of an unexpected re-organization as numerous refurbishments and rides closures at Disneyland in preparation of the new Star Wars Land construction and Guardians of the Galaxy ride have taken its toll on the number of park visitors to the resort.

Overall, Disneyland seems to be just phoning it in of late, falling behind rivals like Universal Studios Hollywood, in the race to compete for the lucrative theme park visitors' dollars in an already crowded and very competitive Southern California entertainment and tourism market. We expect this trend to go well into the next few years as Disneyland has very little to offer in terms of new attractions and shows to the public.


What may be most concerning of all is the attendance figures from the highly anticipated and much-hyped Shanghai Disneyland Resort, which Disney had hoped would surpass every attendance record from any of its theme parks.

The only bright spot that Disney CEO Bob Iger could say about Shanghai
Disneyland was that they were selling more turkey legs than expected
By comparison, Disney's top theme park, the Magic Kingdom in Walt Disney World drew in a record 20.4 million visitors last year, according to figures from the Themed Entertainment Association (TEA.)

Disney had originally projected more than 15 million visitors coming to Shanghai Disneyland during its first year of operations; however, after seeing only under a million visitors in its first month of operations in July, during what is considered the busiest peak season for visitors, Disney had to revise its attendance projections to Shanghai Disney by decreasing it by 25-50% to only 10 to 12 million visitors, about the same level of attendance to Disneyland Paris.

Given that July is traditionally one of Disney's busiest times of the year for theme parks, a figure under a million visitors per month will not likely be sustained during lean, off-peak months of the year, so 8-10 million at most in attendance may be more realistic park attendance projection numbers.


The underlying problem with Shanghai Disney is that Disney has not been able to make headway in promoting its business interests on any mass media platform in Communist China.

The BFG bombing in theaters continues a long line of
live-action tent pole bombs for the Disney Studios brand
This is especially concerning for Disney's business interests in China because Shanghai Disneyland has long been anticipated to draw away visitors from its long-struggling Hong Kong Disneyland Resort in Penny's Bay. Hong Kong Disney is Disney worst attended theme park, and is back in the red as of last year.

Given Hong Kong Disney's struggling numbers and Disneyland Paris' depressed attendance numbers due to ongoing concerns over terrorism in Europe, all the Disney theme parks and resorts are struggling at the worst possible time, during the crucial peak summer season.

As for Disney's Consumer Products and Digital Interactive division, they are much in line with the rest of Disney's fortunes. Disney-branded products are not flying off the shelves as Frozen merchandise is not as hot this year as they were during the same time last year.

Disney announced the shuttering of its Infinity video game division last quarter, and even new investments in digital media content such as Maker Studios are laying off staff due to less than stellar performance since being acquired by Disney.

Overall, we expect a slaughter on Disney stock prices next Tuesday during Disney's crucial peak season quarterly earnings call. So far, the stock price have been very flat in anticipation of the announcement next week, but given that Disney has nothing new to offer investors in terms of future growth drivers, it doesn't look very bright for the Empire of Mouse anytime in the foreseeable future as it appears all its divisions are stuck in the mud.


Articles published after our article: 


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