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Disney reports earnings on Thursday.

Dreamstime

Walt Disney

is set to release its results for the April-to-June period on Thursday after the market closes. Investors are expecting a big improvement from the year-ago period, during the worst months of the Covid-19 pandemic in the U.S.

On average, analysts are forecasting $633 million in net income on $16.8 billion in revenue from Disney in its fiscal third quarter. That profit translates to 36 cents per share, or a forecast 55 cents after adjustments. It compares with a loss of $2.61 per share and $11.8 billion in revenue a year ago.

Back then, theme parks and movie theaters were closed, sports events were canceled, and advertisers pulled back on spending. That pushed Disney’s earnings deep into the red and forced the company to suspend its semiannual dividend payment.

But that same stay-at-home shift was a boon for Disney+, the media and entertainment giant’s upstart streaming service. Former CEO Bob Iger and his successor Bob Chapek have staked the future of Disney on its direct-to-consumer push. Soaring subscriber counts at Disney+, Hulu, and ESPN+ during last year’s lockdowns pushed Disney stock to record highs, even as its traditional business suffered.

The fiscal third quarter could be a big of a reversal of those trends. A reopening economy, savings-rich consumers, and eager advertisers will likely have Disney’s legacy divisions looking strong, just as streaming loses its biggest tailwind.

And Disney’s stock has been stuck in neutral lately: It’s up 36% over the past year—three points ahead of the

S&P 500

—but flat since December and down 12% from its March record. 

Disney ended its fiscal second quarter in March with 103.6 million Disney+ subscribers (which includes Disney+ Hotstar in India and Star+ in other international markets). On average, Wall Street analysts expect that total to rise to 115.2 million, according to FactSet. That’s on the way to Disney management’s guidance of 260 million Disney+ subscribers by the end of its fiscal 2024. The company’s direct-to-consumer revenue is seen rising to $4.3 billion, and the segment is expected to register an operating loss of more than $500 million.

Netflix

(NFLX) cited the impact of widespread vaccinations and lifting of government restrictions during the second quarter for a decline of 430,000 subscribers in North America in the second quarter, while growth decelerated abroad. Investors appear to be worrying that Disney+ won’t be fully immune to those same pressures. But that means that expectations are low, and it might not take a big beat on the subscriber front to send shares rallying.

As for Disney’s theme parks and consumer products business, that faces some easy comparisons. Revenues in the segment tumbled last year, as Disney’s properties across the globe were forced to close and then operate under capacity limits. Analysts expect a fourfold increase in Disney’s parks revenue from the year-ago quarter. They still predict an operating loss in the period, however—the segment used to earn as much as Disney’s broadcast and cable networks in prepandemic times. Any negative commentary from management on Thursday about the Delta variant’s impact on attendance in the current quarter could cast a cloud on otherwise strong results there.

Disney’s networks—which include ABC, ESPN, Disney Channel, FX, and National Geographic—should likewise benefit from the comparison to the year-ago period as sports leagues and advertisers returned. That segment is expected to be responsible for Disney’s entire profit in the quarter. 

Disney is in the midst of a metamorphosis from a legacy media and parks company into the direct-to-consumer entertainment conglomerate of the future. The fiscal third quarter may underline the bumpy road it takes to get there.

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