Can Disney Generate Positive Revenue in F1Q23?

Despite a weak advertising market leading to less-than-impressive revenue in this segment, solid parks and competitive park attendance have allowed Disney to remain positive in revenue. UBS expects the price target on the Disney F1Q23 preview to be $122 and maintains a buy rating based on the following analysis.

With the continued Parks strength and the slightly improved DTC dilution, though with the impact of a mixed ad environment, UBS still expects total revenues to grow 8.0% yoy to $23.6B while EBIT falls 20% yoy to $2.6B ($2.7B prior), equating to 11% margins, down ~400 bps yoy, and EPS of $4.32 in F23, ramping to $5.23/$6.53 in F24/25. Moreover, with CEO Iger returning, UBC believes commentary would pay more attention to profitability, incl. a refined DTC strategy prioritizing content quality over quantity.

UBS forecasts a limited impact of higher D+ ad-free tier pricing for the F1 quarter as price increases need to give users time to adjust, thus the ad-tier generates <$0.5B of ad rev in the first yr or ~$3/mo/sub. Meanwhile, due to the tough competition, the core subscriber increment in F1Q was small compared to 9M in F4Q, adding just 1M subs. What's more, UBS expects revs to fall 4% with EBIT down a whopping 19% due to the weak advertising market and shift of 2 NCAA football playoff games to F2Q. Despite this, its viewership still outperformed its peers.

UBS expects DPEP revenue/EBIT to remain solid in the F1Q due to continued growth of attendance and per capita spending in US/Paris parks, as well as a higher contribution from cruises. UBS expects segment rev to grow 12% in F23E while EBIT grows 17% to $9.2B, for 28.6% margins (+110 bps yoy).

Bloomberg's consensus estimate is revenue of $23.391B, adj. net income of $1.328B, and adj. EPS of $0.746.