What Happened

Despite all the fanfare over the launch of Disney+, Disney's earnings were met with a resounding "meh" from the market. Disney missed on revenue and beat on adjusted earnings. While it produced slightly higher-than-expected Media Networks revenue, it wasn't enough to impress investors. The stock jumped then fell in after-hours trading, ending up essentially flat.

(Below is Investopedia's original earnings preview, published 1-30-20)

What to Look For

Since Walt Disney Company (DIS) launched its Disney+ streaming entertainment service in November, investors have focused on how well the service is competing against streaming giant Netflix, Inc. (NFLX) and newcomers like Apple, Inc. (AAPL). Investors will get their first glimpse of Disney's progress when it reports earnings on February 4, 2020 for fiscal Q1 2020. A key metric investors will watch is revenue for Disney's Media Networks segment, which includes television and cable channel revenues from streaming. Analysts estimate that corporate and media networks revenue rose in Q1, while earnings per share fell 36.3%. Disney's fiscal year ends on September 30. In the past 12 months, Disney stock has slightly outperformed the market, returning 25.1% as compared with 22.1% for the S&P 500 Q1 FY2020. 

One Year Total Return for S&P 500 and Disney
Source: TradingView.

Analysts expect Disney to report diluted earnings per share (EPS) of $1.18 on revenue of $21.0 billion for Q1 FY2020. These estimates represent mixed results. On the positive side, this revenue figure would mark impressive year-over-year (YOY) growth of 37.0% as annual revenue benefited from the acquisition of 21st Century Fox. On the other hand, with Q1 FY2019 EPS at $1.86, this EPS estimate could mark a decline of 36.3%, due partly to the costs of the acquisition and expanding its streaming service. EPS declined by a nearly identical margin YOY in Q1 FY2019 following robust EPS growth a year earlier in Q1 FY2018. Disney stock climbed sharply in November of 2019 just following the release of Q4 FY2019 earnings, when revenue slightly beat expectations but EPS fell below consensus estimates.

Disney Key Metrics
  Estimate for fiscal Q1 2020 Fiscal Q1 2019 Fiscal Q1 2018
Earnings per share (in dollars) 1.18 1.86 2.91
Revenue (in billions of dollars) 21.0 15.3 15.4
Media networks revenue (in billions of dollars) 7.2 5.9 5.6

Source: Visible Alpha

For Disney, Media Networks revenue includes all revenue from television and cable channels. This is an important metric for the company at this point because it is especially vulnerable to change, particularly given the broad trend toward viewership decline in Disney's legacy network ESPN as a result of users cutting cable. Disney+ faces major challenges because the field of streaming services is already packed and competition for subscribers is intense. With Disney+, the company plans to offset slowing sales in its traditional television and cable services as a result of the growing popularity of streaming. Because the success of Disney+ (as well as the ongoing performance of ESPN) will be reflected in the Media Networks segment, investors should look to this revenue as an indicator of performance.

Revenue growth in Disney's Media Networks business fell YOY in the five quarters from Q3 2017 through Q3 2018. But revenue has risen in every quarter YOY since then, and sharply accelerated in the second half of FY 2019. Revenue for this segment grew by 6.6% YOY in Q1 FY2019 and then by 22.3% in Q4, triple the pace of Q1. Based on analyst predictions of $7.2 billion, Media Networks revenue could grow by 21.1% YOY in Q1 FY2020.