Earnings Preview: Disney Will Benefit From The Success Of 'Thor' And 'Frozen'

Feb. 4.14 | About: The Walt (DIS)

Disney (NYSE:DIS) will report its Q1 earnings for fiscal 2014 on February 5. We expect Disney to report higher earnings driven by its theme parks and movie business. Earlier in January, Comcast (NASDAQ:CMCSA) reported gains in its theme park business driven by higher attendance. Similar growth in visitation should be visible for Disney as well. The company will also benefit from two successful movies released in the quarter – Thor: The Dark World and Frozen. The sports giant ESPN witnessed 9% growth in ad revenues in the previous quarter amid higher ratings driven by College Football, Major League Baseball and the NFL. [1] The network will continue to benefit from its football coverage in the December quarter as well. Disney’s new Infinity video game remained popular and hit 3 million mark in number of starter-packs sold worldwide since its launch in August, 2013. [2] This all no doubt aided Disney’s overall growth for the quarter.

All Eyes On The Movie Business

Disney Studios contribute close to 7% to the company’s value, according to our estimates. Disney saw a fantastic run in 2013 and captured 16% market share with $1.71 billion box-office grossings in the U.S. [3] The company launched two successful movies in the December quarter. Disney’s sequel in the Thor series, Thor: The Dark World has grossed $633 million on global box-office. [4] The big hit for Disney is Frozen, which had a production budget of $150 million and has already grossed more than $864 million at the box-office globally. [5] We expect the company to report solid growth in this division.

ESPN Will Benefit From Football

ESPN had an extensive coverage of the 2013-14 college football season with 367 exclusive regular season games and 33 bowl game telecasts. ESPN posted 9% increase in overall Bowl Championship Series viewership over last season. [6] Separately, ESPN said its 17 Monday Night Football telecasts averaged 13,679,000 viewers, making it the third-most viewed season in ESPN’s history. Eight times during its schedule, the network won the night as the most-watched network among households and total viewers in prime time. [7] The ratings trend indicates continued growth in ESPN’s ad revenues for the December quarter.

Infinity Sales Hit 3 Million Mark

Disney launched Infinity on August, 18, 2013. The game allows players to mix and match popular Disney and Pixar characters in self-constructed video game adventures. The company has already sold 3 million units so far and the game was also ranked one of the 2013’s ten best-selling games in the U.S. [2] Infinity is a part of Disney Interactive, which swung to a profit of $16 million in the last quarter from a loss of $76 million in the prior year period, primarily due to the success of the new video game. [1] The division should post growth over the prior year December quarter driven by the higher sales.

Continued Growth In Theme Parks Business

According to our estimates, the theme parks business contributes around 23% to Disney’s value. While the revenues at this division increased by 8% to $3.70 billion in September quarter of 2013, the operating income jumped 15% to $571 million, driven by increased guest spending, attendance and occupied room nights at Disney resorts. [1] Theme parks business is driven by the per capita guest spend and attendance at the park. Consumer spending in the U.S. increased 0.82% to $10,833 billion in the last quarter of 2013 as compared to the September quarter. [8] The company has been witnessing attendance growth in its theme parks for quite some time now. This can be primarily attributed to the improving U.S. economy and Disney’s investment in new attractions within its resorts. The company is currently developing an Avatar based theme park at The Animal Kingdom resort (Read More –Avatar Land Addition to Benefit Disney’s Theme Park Business). We believe there was continued growth in December quarter, driven by higher attendance and per capita guest spend at the theme parks.

Notes:
  1. Disney’s SEC Filings
  2. Disney Infinity’ Scores a Touchdown with Three Million Starter Packs Sold and “Big Game” Downloadable Toy Box, Disney Post, Feb 1, 2014
  3. Studio Market Share – 2013, Box Office Mojo
  4. Thor: The Dark World, Box Office Mojo
  5. Frozen, Box Office Mojo
  6. College Football Generates Record Audiences – BCS Title Game Third Most-Viewed Cable Program Ever, The Futon Critic, Jan 10, 2014
  7. An NFL Ratings Bonanza, Sports Illustrated, Jan 2014
  8. United States Consumer Spending, Trading Economics

Disclosure: No positions