Disney's earnings call misses Wall Street expectations again for the fifth time in the last six quarters, sending its shares plummeting

Disney stock prices again plummeted in after hours trading after Disney announced
yet another disappointing quarterly earnings call to Wall Street investors
The Walt Disney Company released its third quarter financial results yesterday for its required U.S. Securities and Exchange Commission (SEC) filing during its quarterly earnings call to share holders after the close of the bell on trading day, and it was not a pretty sight if you have money invested in the company.

The House of Mouse posted very weak earnings of $1.51 per share on revenues of $14.24 billion which were again below Wall Street expectations for a consensus EPS of $1.55 on $14.42 billion in expected revenue.

This is the fifth time in the last six fiscal quarters that Disney missed Wall Street expectations in earnings, which sent investors scurrying, and Disney shares plummeted by more than 3% immediately in after hours trading and 5% on Wednesday after the opening bell to their lowest point in over eight months.


Year to date, Disney's numbers are way down compared to the same time a year ago, where the multi-media giant posted earnings of $1.62 per share on nominally higher revenues of $14.28 billion. Most notable of all, profits for Disney were significantly down by 9% from a year ago.

ESPN continues to dominate the news about why Disney is failing to meet Wall
Street expectations for earnings, suggesting it is still a big problem for Disney
This is quite alarming news since, during the same time period last year, Disney had just opened up a whole new theme park resort in mainland China, which hadn't had a chance to get up and running yet. So the numbers are far more dismal than what was reported on the SEC filing yesterday, if you take into account that Shanghai Disneyland had its first full year of operations under its belt.

Breaking down the numbers by segments, studio entertainment revenue was down a whopping 16% to $2.393 billion with the unit's operating income tumbling more than 17%. Consumer products and interactive media revenue slipped 5% to $1.085 billion. Media networks revenue slid 1% to $5.866 billion. But on what looked to be the up-side, parks and resorts revenue reported revenues up about 12% to $4.894 billion.


Again, given the fact that Disney's newest theme park resort, Shanghai Disneyland, had its first full year of operations under its belt in June, the newly added Disney theme park resort should have boosted the theme parks and resorts segment revenues by at least 16%, if we assume we can divide the earnings of all six existing theme parks in Disney's worldwide portfolio straight down the middle in equal partitions.

Disney shares plummeted by more than 5% on the opening of the trading day
this morning after the weak quarterly results announced yesterday
This is a very conservative and more than a reasonable assumption to make, given the fact that Shanghai Disneyland is in the most populous and second-most richest country in the world.

By this assumption, the theme parks and resorts segment actually underperformed by at least 4%, when trying to take the added expected contributions from Disney's newest theme park and resort in mainland China into account.

Disney, however, is reporting its theme park numbers to be a great success. The Themed Entertainment Association (TEA), on the other hand, reported contradictory metrics to what Disney officials were claiming yesterday as an unexpected windfall from their supposedly growing theme parks operations last year.

Just a few months ago, the annual TEA report on attendance at theme parks showed that attendance numbers dipped in all Disney theme parks worldwide last year, with notable double-digit declines in attendance numbers particularly at Disney's long-struggling international theme park resorts, namely Hong Kong Disneyland and Disneyland Paris.


This is a very curious contradiction indeed, since Disney claimed on Tuesday evening that its international theme parks operations—particularly Shanghai Disney and Disneyland Paris—drove much of its third quarter "growth," instead of its domestic U.S. theme parks operations whose revenues were stagnant, if not in decline, from the same period last year.

Mickey Mouse is officially down and out with a whole year and a half of weak
fiscal results and a clear pattern of declining revenues
This claim by Disney of an apparent "growth" in the international theme parks unit is contradictory to recent news about Disney international theme parks.

Disney recently bailed out Disneyland Paris in February to the tune of $2 billion after the park flopped from fears of continuing threats from terrorism on the European continent, and Disney also injected a similar $1.4 billion bail out in Hong Kong Disney within the same month after that theme park flopped, suggesting that there is really nothing to celebrate about Disney's international theme parks and resorts unit at all.

If there was really anything to celebrate about Shanghai Disneyland's first year of operations, which we believe there wasn't, it was completely wiped away by how Shanghai Disney cannibalized mainland business away from Disney's other struggling Chinese theme park, Hong Kong Disneyland.



Thus, we can conclude that all of Disney's business segments, including its theme parks and resorts operations, fell short of consensus expectations this financial quarter against what Disney claimed during their quarterly earnings telephone conference.


What Disney officials claim as a success simply cannot be believed anymore on face value by wary investors.

Disney is realizing that Netflix is a serious threat to its cable TV businesses, so
the House of Mouse is trying to launch its own video streaming services to compete
Breaking down Disney's other revenue streams by business segments even further, we are continuing to see very disturbing trends in Disney's largest and most profitable business segment, its media networks segment.

Revenues for cable networks division, in particular, slid by more than 3% to $4.1 billion, and more shockingly, operating income for the media networks segment, as a whole, plunged by more than 23% to $1.5 billion.

This was the fifth straight fiscal quarter in a row that the unit's operating income declined year-over-year.

Disney largely blamed its struggling behemoth ESPN, which has long been the sole driving profit engine for the company, for the very noticeable decline.


"The decrease at ESPN was due to higher programming costs, lower advertising revenue and severance and contract termination costs, partially offset by affiliate revenue growth," Disney executives admitted yesterday.

Are Hollywood media giants that are purely content providers, like
Disney, becoming like dinosaurs in the digital age of distribution?
It should be noted that we reported last month that even Disney's kids-oriented cable television properties (including its flagship Disney Channel, Disney Junior, Disney XD, FreeForm, and various other Disney kids-oriented channels) are experiencing a viewship free fall of their own as well with their respective core audiences, kids and teens, much in the same vane as its goose that laid the golden egg, ESPN, has been seeing over numerous fiscal quarters.

Thus, the declining value of Disney stocks, based on even more bad news of ESPN and Disney's cable networks continuing to falter, suggests that the markets are still continuing to correct for the phenomenon of cord-cutting into Disney's market cap, which apparently is still a very active and ongoing factor that has yet to be even slightly abated.

This basically proves that the ESPN situation hasn't yet come close to bottoming out for Disney shares on Wall Street.

What's most disturbing of all is the fact that Disney's most recent, strongest performing business segment, studio entertainment, posted its biggest declines in revenue, 16%, and operating income, 17%, this quarter.


All this bad news from yesterday's earning call forced Disney to announce a radical strategic shift in its media business model to try to somehow reassure nervous investors that they have some kind of plan in place to fix its woefully sagging media empire.

Disney's revenue breakdown by segments
In what has got to be considered a "Hail Mary" move, Disney announced they have taken its biggest step yet to commit going "over-the-top" in providing the bulk of its content, including much of its live sports programming, movies and television shows, on its own Netflix-like start-up subscription video streaming services, starting in 2018 with ESPN and 2019 for its movies and television shows.

As part of the new streaming video services, Disney announced it paid $1.58 billion for a majority stake in Bamtech, a video streaming company developed by Major League Baseball (MLB) to live-stream MLB baseball games online, which Disney will use to develop both of its proposed video streaming platforms.


After all, if you want big high-stakes, high-tech business solutions done right, who else would you turn to than a bunch of professional jocks who wear jock straps for a living, right?


Disney CEO Bob Iger was forced to make the bold announcement on the dramatic shift in Disney's business strategy to try to shake things up at the slumping media giant and distract worried investors away from Disney's many pressing business problems.

Disney's call to arms against Silicon Valley video streaming giants, like Netflix, will likely
set off a bloody war in Hollywood, quickening the demise of the cable bundle and even
theatrically-released movies, first at the cineplexes across the country, and then the world
Robin Diedrich, an analyst with Edward Jones Research, said that the subscriber losses probably drove Disney’s decision to launch the new platforms.

“We continue to see more erosion of general subscribers in the traditional business,” Diedrich said. “That is the concern and probably what was pushing them to do this sooner rather than later.”

Unfortunately for Disney, the rouse didn't work, as Disney shares continued to plummet this morning on the uncertainties the plan will bring. The plan announced by Iger was half-baked from its very inception with very little of the financials actually worked out at the time of the announcement.
    
With the not-too-surprising nor welcomed announcement, however, Disney also had to announce another bombshell it dropped saying it would end its existing distribution agreement with Netflix for distributing its new movies, beginning with the 2019 calendar year theatrical releases, as Disney will begin directly competing against the online video streaming media giant on Netflix's home turf on the internet.

Curiously enough, Disney will continue to honor its development deal for new programming on Netflix, which includes several Marvel TV projects. No one is certain if the Disney announcement of launching its own start-up video streaming services were a result of Disney failing to make a deal to acquire Netflix, which had been rumored on Wall Street for quite a while.


But Iger's bombshell announcement of fully committing Disney to go "over-the-top" with most of its content within the next two years seems also to reflect a profound sense of desperation inside the C-suite at the House of Mouse.


Ending its online distribution deal with Netflix while at the same time threatening most of Silicon Valley as direct competitors in the business of online distribution of streaming video content is a defiant call to arms and an egregious act of war, pitting some in Hollywood against many of the Silicon Valley tech giants and with each other. It's a move that reeks of fear and panic in our estimation.


Disney's move is kind of like the dinosaurs revolting against the asteroid that caused their extinction by using nothing more than suntan lotion to fend off the inevitable tides of fate. Disney's fight is not only against Netflix, but it's also against all the other behemoth online streaming video content distributors, such as Apple, Google, Amazon, Facebook, Twitter, etc.


If all the other studios don't take Disney's lead and ban together to end their respective distribution deals with Netflix and all the other Silicon Valley tech giants (e.g., Apple TV, Amazon Prime, Google Chromecast, Google TV, etc.,) then Disney may have sealed its own fate among the many tech-challenged dinosaurs left out there in the legacy media landscape to fend off the mighty asteroid of digital tech disruption that is inevitably going to revolutionize and completely redefine the entire entertainment and media landscape as we know it.


The biggest problem we see with Disney seems to be that they are leveraged way too deep in entertainment business sectors of the market that are clearly in steep decline. (Anyone remember the music recording industry and record shops?)

Disney's bombshell announcement Tuesday was to cut off its nose to spite its face
In all appearances, it seems that, having failed to strong arm Netflix into a takeover bid this past year using threats of pulling its distribution deal and starting its own "over-the-top" streaming services to compete against the online video streaming giant, Disney was forced to back up its idle threats with action to try to punish Netflix, even before Disney was prepared to actually make good on their threats.

It's not only a desperate strategic move that can clearly be considered a "Hail Mary," but it's an unsound business move with no details worked out that reeks of rushing to cut one's own nose off to spite one's face.

Disney has literally shot itself in the foot, but what other choice did it have? The writing has clearly been on the walls for some time now, and no one at the House of Mouse, including CEO Bob Iger, has come up with any solution to stem the tide of the media giant's inevitable and impending demise from digital online disruption of its studio entertainment and media networks segments.


These are, indeed, very troubling and desperate financial times at the House of Mouse. They may be setting themselves up to be acquired by another, much larger multinational company—maybe even from the likes of Netflix—or maybe to be taken-over in a hostile manner from some other yet to be identified corporate raider(s).


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