Walt Disney Co (NYSE:DIS) stock saw an uptick in spite of disappointing Q4 earnings results. Can DIS stock keep rising from here?
Media and entertainment conglomerate Walt Disney Co (NYSE:DIS) reported its fiscal fourth-quarter earnings on Thursday, after the market close which was disappointing on almost all fronts. The House of Mouse missed both the top and bottom line numbers and had initially slipped in the premarket trade on Friday, only to close 2.05% higher as investors and analysts were digesting the announcement from the earnings call. The video streaming plans, as well as yet another trilogy of Star Wars films, were the catalysts behind Disney stock's rise. While ESPN was, as usual, the culprit for the poor performance of the Burbank, California-based entertainment giant, there were also other factors behind the company's poor showing. Now, the question is, Can DIS stock continue to rise higher from here? Or, is it only a matter of time before Disney stock falls below $100 once more?
Walt Disney Co Q4 Earnings Overview.
A quick look at the headline numbers indicates that Disney had a poor quarter on many fronts. Walt Disney Co reported Non-GAAP EPS of $1.07 on revenue of $12.78 billion, well below the Wall Street consensus of $1.14 earnings on revenue of $13.27 billion. The Q4 numbers were down compared to the year-ago period, with revenue falling by 3% year-over-year and earnings dropping by a similar 3% year-on-year. Disney actually reported an EPS of $1.13 including certain items affecting comparability. Operating income, which has come under pressure of late, fell further by 11% to $2.81 billion in the fourth quarter. We had suggested to investors in our earnings preview to keep an eye on the operating income metric. As usual, the Parks and Resorts segment was the best performer and being the only segment to register YoY revenue growth, up 6% to $4.67 billion. While it's easy to write off Disney for the headline and bottom line drops, Disney stock investors rather looked at positives in the Q4 earnings call.
Netflix like service. Can Disney be successful? At what cost?
Disney CEO, Bob Iger at the earnings call gave more details about the company's streaming plans. Iger stated that Disney-content direct-to-consumer offering is coming in the latter part of 2019 and will be priced substantially cheaper than the streaming giant Netflix (NASDAQ:NFLX) but also acknowledged it will have much less content than Netflix at first. The entertainment giant has a lot to do before it comes anywhere close to challenging Netflix. With Disney planning to produce content that will stream exclusively on the service, it has a lot of things going for its offering. Disney's streaming service has a great chance of being successful with blockbuster films coupled with original content and predatory pricing. However, the success could come at the cost of its cable and satellite television providers as cord cutting could gain more pace by the time Disney's direct-to-consumer service is out, which as of now is scheduled for late 2019.
The answer to ESPN woes?
The forthcoming streaming service of ESPN will be called ESPN Plus, Bob Iger announced during the earnings call. The declining subscriber has been a big pain point for the media and entertainment giant. He also stated that the ESPN streaming service is to be launched in spring with a completely redesigned app. Though pricing is still undetermined, it still needs to be seen whether that can solve the declining subscriber base issue. In another step to sort ESPN issues, it recently announced that ESPN is bringing its flagship SportsCenter program to popular social platform Snap Inc (NYSE:SNAP). ESPN and Snap Inc have seemed to have two-year partnership agreement to share revenues. It needs to be seen whether ESPN can increase its popularity among teens as ESPN has some content on Snapchat from 2015. It seems Disney is completely betting on the streaming service to solve its subscriber base issues. However, the pricing and the value offering at the price point will be crucial to its success. Till then, Disney has no other answers to the ESPN woes.
Disney Stock Technical Analysis
While DIS stock has managed to rally for the past few days, Disney stock technical chart has also taken the bullish narrative forward. Over the past week, Disney stock has seen multiple bullish signals. The stock made bullish crossovers with its 50-day and 100-day simple moving averages (SMA) with the Moving Average Convergence Divergence (MACD) indicator also turning bullish. Now, DIS stock is facing resistance at its long-term 200-day SMA which it failed to close above on Friday, after having breached it during the day. It now stands at 105.78. For Disney stock to continue its uptrend from here, it needs to break the resistance at the 200-day SMA.
However, this might be difficult as the stock is in overbought territory. Both popular momentum indicators Relative Strength Index (RSI) and Bollinger Bands suggest Disney stock is overbought. The current RSI reading for the stock is 76.21, well above the commonly used overbought threshold of 70. The share price has also breached the upper Bollinger band to suggest that stock is overbought zone. Given that, the combination of these two indicators is generally considered as a strong signal, Disney stock has its task cut out to continue its upward movement.
To sum up, the technical setup, the disappointing Q4 performance and the lack of strong catalysts could make it difficult Disney stock continue rising higher in the next few trading sessions. However, investors are slightly optimistic on account of the House of Mouse's strong movie slate. The announcement at the earnings call of signing Rian Johnson, director of upcoming film Star Wars: The Last Jedi, to make another trilogy of Star Wars-canon films has come as a big boost. The next few trading sessions could be very crucial for Disney stock's fortunes. Investors would be better off to follow the charts closely to get a better hang of which way the stock may go from here.
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