Why Walt Disney Shares Fall Despite Its Strong Quarterly Profit?

The Walt Disney Company

The Walt Disney Company/Mickey MouseThe Walt Disney Company (NYSE:DIS) reported better-than-expected first-quarter earnings yesterday, but the shares of the company are declining today.

The stock price of the entertainment and media conglomerate is down more than 3% to $89.29 per share as of this writing, around 2:30 in the afternoon in New York.  During the earlier trading today, the stock plunged to as low as $86.25 per share.

The downward movement of Walt Disney’s shares showed that investors were not satisfied with its quarterly financial results despite beating the consensus estimate.

The company reported adjusted earnings increased 28% to $1.63 per share for the first quarter, above the $1.45 per share expected by analysts. Its revenue increased 14% to $15.24 billion.

According to Walt Disney Chairman and CEO Bob Iger, the company achieved the highest quarterly earnings in its history due to the “phenomenal success of Star Wars.”

Why are investors bearish on the stock despite its strong financial results?

Investors are concerned with ESPN’s subscriber losses

Looking closely at the financial results of Walt Disney, the company reported that a 6% decline in operating income from its Media Networks business, which includes Cable Networks and Broadcasting segments—both down 5% and 6%, respectively.

According to the company, the Cable Networks segment suffered a 5% drop in operating income because of the weak performance of ESPN, its sports network and biggest profit contributor, and the lower equity income from A&E.

During the company’s conference call, investors expressed concerned regarding ESPN’s subscriber losses. Investors were focusing their attention on the sports network since August when Mr. Iger admitted that “some subscriber losses” caused the selloff on the shares of Walt Disney and other media companies.

Walt Disney CEO’s response to concerns over ESPN

In response to the concerns that ESPN‘s subscribers continued to decline in the first quarter, Mr. Iger said that they noted an increase after the period.

He explained that the sports networks subscriber losses was largely due to that fact that ESPN was not included in Dish Network’s $20 a month Sling TV skinny bundle of streamed pay TV services.

The Walt Disney Chairman and CEO said the company will engaged in discussion with all distributors and will push ESPN into light packages.

Mr. Iger also pointed out, “Sports is too popular and it’s not just at ESPN. Look how the Super Bowl did, as a for instance. I realize it’s an ultimate event. The notion that either the expanded basic bundle is experiencing its demise or that ESPN is cratering in any way from a sub perspective is just ridiculous.”

“We believe the predictions many have made [about the declining subscribers] are dire than they should be,” he added.

Furthermore, he emphasized that live sports are among the highest-rated programs across television and ESPN has incredible set of license agreements with all major sports.

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