Dow component The Walt Disney Company (DIS) is trading higher by less than 2% in Friday's pre-market after reporting a first quarter 2021 profit of $0.32 per share, much better than expectations for a $0.34 loss. Revenue fell 22.2% year over year to $16.25 billion, beating $15.88 billion estimates. Disney+ added 21.2 million subscribers during the quarter, bringing the total to 94.9 million compared to 26.5 million a year ago.

Key Takeaways

  • Disney beat fourth quarter expectations by a wide margin, reporting a profit of $0.32 per share.
  • Disney+ subscriber growth partially offset sharp declines in other divisions. 
  • The stock rallied to an all-time high after the release.
  • The $200 level could pose strong resistance in coming weeks. 

A slight uptick in broadcasting revenue marked the only bright spot outside of streaming services, underpinned by political advertising, with notable declines reported in cable, theme parks, and movie releases. ESPN had a tough quarter as well, posting a decrease in operating profits due to higher rights costs, timing of college playoff games, and higher NBA licensing fees. Finally, the company noted that it does not expect Disney+, Hulu, and ESPN+ to achieve profitability until 2024.

The entertainment giant poured cold water on speculation that theme park revenue will return to pre-pandemic levels in coming months, stating that Disneyland and Disney Paris aren't expected to reopen until the second half of 2021, at the earliest. Meanwhile, Disney World in Orlando is "experiencing incremental positive contribution, with revenue exceeding opening costs." The company said it was "pleased" with that venue's bookings so far in the first quarter.

Wall Street has been quiet as a church mouse since last night's release, maintaining an "Overweight" rating on Disney stock based upon 20 "Buy," 1 "Overweight," 6 "Hold," and 1 "Underweight" recommendation. Price targets currently range from a low of $124 to a Street-high $211, while the stock is set to open Friday's session just above the median $193 target. The psychological $200 level could pose a substantial barrier, given this elevated placement.

Tip

Operating costs are associated with the maintenance and administration of a business on a day-to-day basis. Operating costs include direct costs of goods sold (COGS) and other operating expenses – often called selling, general, and administrative (SG&A) – which includes rent, payroll, and other overhead costs, as well as raw materials and maintenance expenses.

Disney Weekly Chart (2013 – 2021)

Chart showing the share price performance of The Walt Disney Company (DIS)

TradingView.com

The stock topped out in the low $120s in 2015 after a multi-year uptrend and eased into a broad ascending triangle pattern, ahead of an April 2019 breakout following the announcement of the streaming service's November launch date. The uptick stalled above $150 at the time of the launch, rolling into a correction that accelerated through breakout support during the pandemic decline in the first quarter of 2020.

A second quarter recovery wave reversed at the failed breakout and 50-week exponential moving average (EMA) in June, yielding sideways action into an August rally that reestablished support in October. The stock then took off in a vertical rally impulse, posting a gap between $128 and $134 that remains unfilled. A consolidation starting in January attracted committed buyers, yielding a secondary breakout ahead of last night's earnings report.

The weekly stochastic oscillator is engaged in a buy cycle that hasn't reached the overbought level yet, favoring higher prices into $200, where aggressive sellers may reload positions. That makes sense, with the monthly oscillator now hitting an extremely overbought level that triggered bearish crossovers in 2015 and 2017. As a result, the reward-to-risk profile isn't favorable for new long-side exposure right here.

Tip

An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs and a rising trendline to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns. The breakout can occur to the upside or downside. Ascending triangles are often called continuation patterns since the price will typically break out in the same direction as the trend that was in place just prior to the triangle forming.

The Bottom Line

Disney is trading at an all-time high in the $190s after reporting an unexpected fiscal first quarter 2021 profit.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.