Disney Shares Plunge Despite Film Success: Company to Shut Down Video Game Business


Missed revenue expectations have come to roost on Walt Disney. As the investor’s darling, the company was always ahead of Wall Street earning targets, but on Tuesday, it fell short of estimates. Still, there was a marginal hike in profit and revenue that failed to meet Wall Street’s expectations.

For the quarter ended on April 2, Disney missed revenue targets in cable networks, theme parks, and consumer product divisions.  Disney missed analyst expectations of $1.40 per share, at $1.36 per share. Revenue in the quarter surged $12.97 billion from $12.46 billion, falling below the Wall Street target of $13.19 billion, says a report from Reuters.

The pinch came in weakened television broadcast business, which undercut the jumping revenue in movie and studio units.

Consequently, shares of Disney fell about 6 percent in after-hours trading, to about $100.85. What has surprised all is the company’s exit from console video game business and dropping of the Infinity brand. The decision came despite a boost from animated hit film “Zootopia”.

Net income rose to $2.14 billion in the second quarter from $2.11 billion a year earlier. According to analysts, Disney is getting affected by the trend of “cord-cutting” as younger viewers are shifting to streaming services over cable and satellite TV channels.

Investors are watching ESPN, how the cable brands will weather the storm. Revenue in cable business fell 1.86 percent to $3.96 billion.

“Cable networks continue to face meaningful headwinds and Disney has yet to really answer how they are going to restore growth,” noted BTIG analyst Richard Greenfield.

Disney attributed the fall in ESPN subscriptions and Ad revenue to a change in timing of college football playoff games.  As new revenue streams, CEO Bob Iger said the company would focus on licensing characters for video games and exit publishing its own titles.

Studio revenue increased 22 percent to $2.1 billion, helped by the box-office success of “Star Wars: The Force Awakens” and animated movie “Zootopia”, which collected nearly $1 billion worldwide.

The New York Times notes that unlike the peers, Disney never provides earnings guidance yet it rarely missed expectations.

Addressing the analysts, Iger said he will not stay beyond his contract’s expiration in June 2018. Disney’s board is searching for Iger’s successor after the number 2 and Chief Operating Officer Tom Staggs had resigned.

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