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Walt Disney (NYSE:DIS) unveiled its revamped financial structure, prompting reactions from analysts.
Barclays Analysts Assess the Changes
Barclays analysts noted the primary modification in Disney’s financial structure: the division of the sports business into a distinct segment apart from entertainment. They expressed concerns about the reported margins, standing at 14.4% Year-to-Date in fiscal 2023 (excluding ESPN+ losses). These figures fell below expectations. The analysts, maintaining an Equal Weight rating and a $88 price target for Disney, attributed the lower margins to the inclusion of Disney’s Indian sports channels. The company incurred significant costs for Cricket rights while facing distribution challenges due to a major carriage dispute.
Excluding Star Sports, ESPN+, and ESPN’s international operations (operating at approximately breakeven levels), ESPN’s domestic linear margins seem to be approximately 20.4% Year-to-Date this year, a drop from the 26.1% of the full year ’22, the analysts added.
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Despite lower ESPN+ losses, Barclays noted that ESPN’s domestic operating income for the first three quarters of the current fiscal year had margins around 100 basis points lower than the same period last year. This suggests a more substantial impact on ESPN margins Year-over-Year.
Bernstein Analysts’ Perspective on Disney’s Sports Segment
At Bernstein, analysts highlighted Disney’s allocation of 56% of nine months of revenue from the old Linear Networks to Sports. However, the aggregate Operating Income margin for Sports was only 11% over the three quarters. They explained that this seemingly low margin makes sense considering the exorbitant cost of sports rights.
Analysts pointed out that while the Sports segment’s topline remained stable, its margin exhibited significant volatility. ESPN faces a fundamental challenge in not owning the underlying sports content. With sports rights costs continually rising, Disney must demonstrate that ESPN can effectively aggregate sports content to justify its role and value in this domain.
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Disclaimer: Please note that this article serves solely for informational purposes. As such, it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
