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4 min read . Updated: 12 Aug 2021, 06:09 PM IST Walt Disney Co. is expected to report a sharp jump in sales for the June quarter as more visitors are going to its parks and moviegoers are flowing back into theaters.
However, the world’s largest entertainment company is likely to face questions Thursday about the potential business impact of the Delta variant of Covid-19 and how it plans to continue growing its streaming services.
The company reports fiscal third-quarter earnings Thursday afternoon, and analysts, on average, expect sales of $16.8 billion, according to FactSet. That would be an increase of 42% from a year earlier—when the pandemic locked down much of the world—but still below 2019 levels. Analysts see earnings of $709 million, FactSet said, compared with a year-earlier loss of $4.72 billion.
Analysts expect Disney+ subscriber numbers to reach 115.2 million, which suggests the service may have added close to 12 million new customers during the quarter, a period when more consumers sought entertainment away from home and possibly streamed less.
“We think that subscriber growth could slow in the near term as other leisure activities resume after the pandemic," said David Heger, an analyst at Edward Jones. In addition, analysts and executives say, some consumers may be questioning the number of streaming services they subscribe to.
But Mr. Heger notes that the company still has significant markets to bring online, including parts of Latin America this month.
Despite the surge in direct-to-consumer entertainment services in the U.S., Disney is one of only a handful of companies that competes in streaming globally. A steady expansion could boost overall subscriber numbers, analysts say, and allow it to compete with Netflix Inc. and Amazon.com Inc.’s Prime Video service.
Disney’s share price often reflects the momentum seen in the streaming service. The stock rose steadily from its early pandemic low as Disney+ added subscribers, including when the total hit 100 million after just 16 months. Then the second-quarter earnings report in May showed about six million fewer new subscribers than analysts had expected, and the stock fell. It has mostly flatlined since, closing Wednesday at $178.09.
Disney’s willingness to experiment with distributing movies on its streaming service has provided a new avenue for generating revenue. The summer release “Black Widow" collected more than $60 million in fees when it simultaneously premiered in theaters and on Disney+ for an additional $30.
But “Black Widow" star Scarlett Johansson dropped a bombshell on the entertainment industry when she sued Disney for breach of contract, saying the simultaneous release on Disney+ and in theaters deprived her of tens of millions of dollars. Disney says her suit has no merit. The dispute has highlighted debate in Hollywood about how stars should be compensated in the streaming age.
The conflict hasn’t hit Disney’s stock price, and analysts don’t seem overly concerned. But it could come up as part of the discussion of the quarter because it calls into question a key element of Disney’s streaming strategy. If talent disputes limit the number of movies that can simultaneously premiere on Disney+, that could mean fewer exclusive offerings with which to attract subscribers.
While box-office revenue in the U.S. and Canada has rebounded significantly in recent months, ticket sales are still far off pre-pandemic levels. Overseas, studios have already seen lockdowns in major markets like France and Japan eat into potential box-office grosses.
For its theme parks, which in the past coupled with consumer products has been Disney’s largest revenue generator, concern over the Delta variant of Covid-19 may become a focal point. It is forcing live-entertainment companies to abandon or readjust plans for this fall and winter. Disney’s parks in Orlando, Fla., and Anaheim, Calif., are still open, but could be subject to capacity restrictions or other measures if the spread continues.
Disney has already reintroduced a policy requiring guests to wear masks while indoors at its parks, but it has stopped short of mandating proof of vaccination. Investors are watching the infection rates wearily, considering the $1 billion-plus blow that Covid-related shutdowns brought to Disney’s parks division last year.
In Florida, Covid-19 infections have risen dramatically in recent weeks, but state lawmakers have been reluctant to reimpose restrictions. In California, Disney publicly fought with Gov. Gavin Newsom after he kept Disneyland and other theme in the state parks closed for much of 2020.
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