Disney earnings, revenue fall short of what Wall Street wanted

Last Updated Nov 9, 2017 6:47 PM EST

Walt Disney Co. (DIS) was hardly the happiest place on earth for investors Thursday as the company missed Wall Street analysts' expectations for both revenue and earnings in the company's fourth quarter. But the company is promising profit magic in coming quarters as it expands its "Star Wars" movie franchise with a fifth trilogy in the sci fi series and creates new movie streaming and sports streaming services to rival the offerings of digital media competitors like Netflix and Amazon. 

The Burbank, California-baseld company reported fiscal fourth-quarter profit of $1.75 billion, or net income of $1.13 per share. Earnings, adjusted for one-time items, came to $1.07 per share. 

The results did not match what Wall Street had expected: The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of $1.12 per share.

The entertainment company posted revenue of $12.78 billion in the period, also falling short of Wall Street forecasts. Five analysts surveyed by Zacks expected $13.15 billion.

Disney shares have declined 1.5 percent since the beginning of the year, while the Standard & Poor's 500 index has climbed 15 percent. In the final minutes of trading on Thursday, shares hit $102.68, an increase of 8.5 percent in the last 12 months.

Looking ahead, Disney is banking on its $4 billion deal for Lucasfilm and "Star Wars" to revive the House of Mouse, hoping the latest installments in the sci-fi franchise, "The Last Jedi" in December and a Han Solo movie in May, will drive people to theaters. 

But that's far from the end of money-making opportunities from Han Solo, R2-D2, Kylo Ren and Rey. In fact, CEO Bob Iger said Thursday that the company is now planning a brand-new "Star Wars" trilogy, which will be its fifth.

Disney has drawn big profits from the strengths of its TV channels — namely ESPN — but that growth is challenged as more people dump cable subscriptions. As people turn to online replacements such as Netflix, Disney is hoping to lure them with a streaming service planned for 2019. "Star Wars" movies will be a big part of that; so will a new "Star Wars" series Iger also announced Thursday.

Disney also wants to squeeze cash from "Star Wars" fans in the forms of toys and, theme park visits and hotel stays. More importantly, the movies will serve as a lure for Disney's streaming service, which will contain hundreds of movies and thousands of TV episodes and shorts. Pixar, "Star Wars" and Marvel films will be included along with Disney-brand video. Disney's deal with Netflix is expiring and won't be renewed, making the new service the exclusive online home for much of Disney's prime content.

Morgan Stanley estimates that the service can, after a decade, become a nearly $5 billion-a-year business, with roughly 30 million subscribers. (Netflix's streaming revenues for just the last nine months were $8.1 billion, with 109 million subscribers.) Disney will lose out on hundreds of millions from Netflix when it pulls its movies, and UBS estimates that it needs 32 million subscribers for the app just to break even.

Iger said Thursday that the streaming service will cost less than Netflix at launch. Netflix's streaming plans start at $8 a month.

Disney also plans an ESPN streaming service, which it announced Thursday will be called ESPN Plus, that will launch in spring 2018. It won't air the same sports as its channel — but one day might. ESPN, long its cash cow, has been losing subscribers as attention shifts online.

In the fiscal fourth quarter, the media networks' revenue fell 3 percent to $5.47 billion; profit slid 12 percent, to $1.48 billion. At ESPN, content costs rose and ad revenue fell, but Disney wrangled higher payments from cable companies.

Shares rose 1.4 percent to $104.09 in after-hours trading Thursday.