Disney earnings: ESPN streaming service, pending Fox deal, busy quarter

Updates on ESPN’s new streaming service, Disney’s pending purchase of 21st Century Fox assets and the blockbuster Marvel films “Black Panther” and “Avengers: Infinity War” are expected to highlight a busy quarter when the media and entertainment giant reports earnings on Tuesday.

Disney’s second quarter of 2018 marked the launch of the ESPN+ subscription service, which is considered a key part of the company’s effort to combat mounting subscriber losses for the once-dominant cable sports network. ESPN has lost more than 13 million subscribers since 2011 and millions of dollars in annual revenue.

While the service’s April launch means it won’t affect Disney’s second-quarter report, Disney CEO Bob Iger is expected to provide an update on the effort, as well as the 2019 launch of a second streaming service featuring classic Disney films and original content from Marvel, Star Wars and other key properties.

Iger is also expected to discuss Disney’s ongoing $66.1 billion acquisition of certain 21st Century Fox film and television assets. Comcast, a key competitor, is preparing a bid of its own to displace Disney and acquire the assets, according to reports.

ESPN’s streaming strategy is a “key catalyst” for Disney in upcoming quarters, according to Daniel Ives, chief strategy officer and head of technology research at GBH Insights.

“It’s all about Iger, streaming in 2019 and the Fox deal. Those are the major swing factors going forward,” Ives told Fox Business.

Morgan Stanley analyst Benjamin Swinburne said Disney shares are trading at a “historic discount to the S&P 500” and maintained an overweight rating for the company’s stock, as well as a $130 price target.

“Disney is building content assets that enable it to take advantage of the significant [over the top] opportunity ahead,” Swinburne said in a recent note.

Disney’s studio entertainment segment is expected to be a source of strength in the second quarter. Marvel’s “Black Panther” debuted to critical acclaim, grossing more than $1.3 billion at the global box office since its release in mid-February. Revenue from “Avengers: Infinity War” won’t appear on the books until the third quarter, but the superhero crossover film has already grossed more than $1 billion globally since its April 27 release.

The parks and resorts category is also considered a source of strength. Segment revenue was impressive throughout fiscal 2017 and rose 13% in the first quarter, driven in part by the success of Shanghai Disney.

Wall Street expects Disney’s revenue to rise 5.6% to $14.08 billion in the second quarter, up from $13.34 billion in the same period a year earlier, according to Thomson Reuters data. Analysts project earnings per share of $1.69, up from $1.50 year-over-year.

Disney shares are down more than 9% so far this year.