For those financial analysts who enjoy building company models and updating them quarterly, “this is not our time,” laments Michael Nathanson, the Senior Analyst with respected Wall Street observation house MoffettNathanson.
Nathanson has used the phrase “It’s Complicated” to capture “the difficulty in unpacking” the quarterly drivers for The Walt Disney Co.
Now, Nathanson says, “Those looking for clarity on FY 2020 earnings may not be comforted by Disney’s quarterly results until we get closer to the mid-way point of this fiscal year when many of these factors are known or, at least, extractable by trend analysis.”
Disney’s quarterly drivers, Nathanson says, are “messy.”
First, he points out, “there is the acquisition impact of Fox’s assets on Disney’s above the line legacy divisions.”
Second is the 100% consolidation of Hulu, which impacts below the line numbers and intercompany eliminations.
Lastly, there is “the massive pivot to direct-to-consumer, which will result in steep losses that were disclosed at the April Investor Day but, at the time, did not include Hulu’s International expansion and additional inter-company eliminations.”
For now, the Disney investor story will likely be driven by the metrics surrounding the coming launch of Disney+.
“Given the magnificent promotional machine that is Disney and the recent partnership with Verizon, investors are ‘dreaming the dream,’ which is what we expected would happen and should push Disney’s multiple higher.”
MoffettNathanson continues to believe that Disney+ will have 8 million worldwide subscribers by year end calendar 2019 and 18 million by year-end FY 2020.
However, given more clarity on Western European launch dates (March 31, 2020) and the likelihood of further telco bundles, the firm “might be underestimating the size of the first year of launch.”
Nathanson concludes, “As we have vividly seen at Netflix, when moving in the right direction, momentum in subscriber growth makes those metrics investors’ sole focus…and the market is sensing big things are brewing in the quarters ahead.”
