Shares of The Walt Disney Company (NYSE: DIS) extended their rally after the bell on Wednesday after the entertainment giant reported better than expected earnings and revenue for its most recent quarter. More importantly, Disney finally closed its $71 billion acquisition of Fox, a move that it will open the door to more streaming content once Disney+ goes live later this year.

Q2 2019 Summary

  • Earnings Per Share: $1.61 (excluding items)
  • Revenue: $14.92 billion
  • Direct to Consumer Revenue: $955 million

 

Disney Beats on Earnings, Revenue

Disney reported a 3% annual increase in revenue for its fiscal second quarter, generating $14.92 billion in total sales. Analysts in a median estimate had called for $14.36 billion.

The company reported 15% annual growth in its direct-to-consumer segment, which generated $955 million. The segment was aided by steady growth from ESPN+ and the revenue injection from Hulu, which is now 60% Disney property following the acquisition of Fox. As CNBC reports, Disney earned a one-time gain of $4.9 billion from the revaluation of its original stake in the Hulu streaming service.

Despite the strong revenue growth, per-share earnings declined 13% from a year ago to $1.61. Earnings were still higher than the $1.58 analysts had expected.

Disney’s share price advanced following the earnings report, climbing 0.5% in after-hours trading to reach $135.65. DIS rose 1.2% in regular trading on Wednesday, vastly outperforming the broader market.

Since the start of the year, Disney’s stock price has gained more than 23%.

Walt Disney Share Price YTD - May 9 2019 v2

Source: Yahoo Finance

Fox Acquisition to Catapult Disney+

With the acquisition of Fox, Disney has an even deeper reservoir of content that includes The Simpsons, Fox-owned Marvel characters and National Geographic Partners.

Direct-to-consumer sales are expected to grow once Disney launches its new streaming service, Disney+, later this year. The new service will be priced at $6.99 a month, a significant discount to Netflix, which has raised its fees in recent years.

Netflix has dominated the video streaming market for more than a decade, but the arrival of Disney could provide the fiercest competition yet. That’s because Disney owns a vast library of iconic content and studios like Pixar, Marvel, and Star Wars.

With the acquisition of Fox, Disney has an even deeper reservoir of content that includes The Simpsons, Fox-owned Marvel characters and National Geographic Partners.

Disney’s takeover of Fox is already paying dividends. In Disney’s 11 days of ownership of 21st Century Fox, it generated $373 million in revenue and $25 million in operating income.

 

Conclusion

The video streaming wars are about to heat up, and Disney has a good chance of tipping the scale in its favour. Hulu already has nearly 27 million paid subscribers and managed to outpace Netflix in terms of U.S. subscriber growth by a factor of two during the most recent quarter. Disney still has a lot of work to do, though. As of January, Netflix’s total subscriber count stood at 139 million.

Disclaimer: Author has no investment position in The Walt Disney Co at the time of writing.