Walt Disney will report its Q1 financial results on Wednesday, April 10, after Wall Street's closing bell. The leading entertainment powerhouse is expected to post annual revenue growth, but earnings will probably suffer a moderate decline. Once more, investors will focus on Disney streaming service’s net subscriptions as well as the traffic figures from the firm’s on-site activities.

Solid performance but not spectacular

After a devastating 2022, Walt Disney’s stock had a good start to the year, but there are no idiosyncratic drivers behind those gains. The entertainment giant capitalized on the banking turmoil during March as investors surprisingly found shelter in growth-oriented companies due to increasing bets of faster rate cuts. Even though Disney is listed on the Dow Jones index, its status resembles that of a tech company, especially after the launch of its streaming platform in late 2019.

Disney’s diversification efforts flourished after the end of the pandemic. The streaming segment continued to grow, while traffic in on-site attractions rebounded strongly.

Nevertheless, clouds have started to appear over the firm’s growth prospects, with analysts being sceptical about whether there is still upside potential in the saturated streaming sector. Apart from that, the global economy is still at risk of falling into a recession, which could significantly reduce consumer spending on discretionary leisure activities.

Latest developments

Firstly, this will be the first full reporting quarter after the return of Bob Iger as the CEO and investors are likely to assess his influence on the firm’s performance. Moving to the streaming segment, subscriber numbers could be negatively affected from Disney’s inability to renew the rights to the IPL cricket tournament in India, while the latest subscription price hike in December might have not been welcomed by customers.

However, any potential weakness from the above could be offset by the introduction of the new ad-supported version of Disney+. Moreover, management expects earnings to be supported by the sustained post-covid momentum observed in the Theme Park business.

In February, the company announced plans to restructure its operations into three smaller units, including a streaming and media division called Disney Entertainment, a Theme Parks segment and a sports-related department named ESPN. Hence, investors will be looking for clues regarding this latest initiative.

Mixed fundamental picture

Disney is expected to exhibit solid revenue figures, albeit profits will probably drop as the company has been investing huge amounts of money for its business restructuring and content creation.

The world's leading entertainment conglomerate is anticipated to post revenue of $21.79 billion for the first quarter, according to consensus estimates by Refinitiv IBES, which would represent a year-on-year growth of 7.49%. On the contrary, earnings per share (EPS) are projected at $0.93, marking a 13.91% drop against the same quarter last year.

Reasonable valuation

Disney has been facing a slowdown in its streaming segment, which is anticipated to keep applying downside pressures on the firm’s profitability and revenue generation. However, at the current stock price levels, the firm seems to be fairly valued compared to the major US indices.

The 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 20.6x, which is way lower than tech-heavy Nasdaq’s average multiple of 25.4x.

Can the share price rebound?

Disney's stock had been in recovery mode after a disastrous 2022 in which the price lost almost half of its value.  However, the 2023 rally paused in mid-February and the price has been trading sideways for the past two months.

Furthermore, the completion of a bearish cross between the 50- and 200-day simple moving averages (SMAs), shortly after a golden cross had occurred, is painting a gloomy short-term technical picture ahead of the upcoming earnings.

Should earnings disappoint, the price could re-test $96.50, which held its ground twice in the past two weeks. Dipping beneath that zone, the stock might encounter support at the March low of $90.50.

Alternatively, solid results coupled with optimistic guidance could propel the price towards the September high of $108.80, a break above which might open the door for the 2023 high of $118.00.