Walt Disney (DIS) in Rally Mode After Mixed Quarter

Dow component The Walt Disney Company (DIS) is trading higher by more than 4% on Friday after beating fourth quarter 2020 top- and bottom-line estimates. Even so, the entertainment giant posted a loss of $0.20 per share while revenue fell 23% to $14.71 billion, highlighting continued pandemic headwinds. The Disney+ streaming service continued to bolster slumping revenue, with subscriptions lifting above the 73 million mark. However, the total is misleading because over 25% of subs are paying less than $1/month through a deal with India's Hotstar.

Key Takeaways

  • Disney beat fourth quarter expectations but reported a loss on a decline in revenue.
  • The Disney+ streaming service booked another quarter of blockbuster growth.
  • Parks and Studio Entertainment divisions continue to report near catastrophic quarterly losses.
  • The stock has now mounted support near $137 and could test 2019's all-time high in the $150s.

The Cable and Broadcasting division revenue showed respectable year-over-year gains, offset by another disastrous quarter at the Parks and Studio Entertainment divisions, down 52% and 41%, respectively. Even so, Disney has now restarted production on all delayed projects, while Orlando bookings have been favorable, with the park at reduced capacity limits for Thanksgiving week. The company also announced that it would forgo the next semi-annual dividend.

The post-news reaction was relatively muted after Monday's high-volume breakout to a 10-month high at $147.68. The stock pulled back more than 12 points ahead of the report and is trading just above the $140 level ahead of Friday's opening bell. It is now situated 13 points below November 2019's all-time high at $153.41 and could test that level in coming months. However, accumulation has failed to keep up with price action, lowering the odds for a successful breakout.

CEO Bob Chapek screamed at California Governor Gavin Newsom during the conference call for forcing Disneyland to remain closed until at least the start of 2021, citing the success of the Orlando reopening. The attack was reminiscent of Elon Musk's April threat to leave the state if Tesla, Inc.'s (TSLA) Freemont factory wasn't permitted to reopen. The state finally relented, but Newsom is showing no signs of backing down in his dispute with Disney.

Wall Street analysts have been quiet as church mice since the earnings release, perhaps signaling discomfort with Disney's depressed revenue and high valuation. Consensus now stands at a "Strong Buy" rating based upon 12 "Buy," 2 "Hold," and 0 "Sell" recommendations. Price targets currently range from a low of $136 to a Street-high $170, while the stock is set to open Friday's session about $13 below the $153 target.

Accumulation typically refers to a position size in an asset that increases over multiple transactions. It can also refer to a general increase in buying activity in an asset. In this case, the asset is said to be "under accumulation" or "being accumulated."

Disney Weekly Chart (2015 – 2020)

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

A multi-year uptrend ended near $120 in 2015, giving way to a selloff into the mid-$80s. That marked the first wave of a broad symmetrical triangle that ended with a powerful April 2019 breakout, after Disney announced the November release date for the streaming service. The stock topped out in the $150s right after Disney+ went online, entering a correction that failed the breakout and triangle support during the first quarter's pandemic decline.

A bounce into June reversed after reaching the broken double top just above triangle resistance. It tested that ceiling for five months and gapped higher on Monday in reaction to Pfizer Inc.'s (PFE) vaccine update. The .786 Fibonacci selloff retracement at $137.50 now marks a major inflection point because this harmonic level can act as a springboard for a rally that completes a 100% retracement into the prior high. Bulls hold a major edge for now, with the stock set to open around the $140 level.

Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%.

The Bottom Line

Walt Disney reported a quarterly loss on a 23% decline in revenue, but the results beat fourth quarter expectations, triggering a buy-the-news reaction.

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

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