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  • Needham analyst Laura Martin reiterated a Hold on Walt Disney Co DIS.
  • For 4Q22, although she maintained the DIS revenue estimate at $21.2 billion (up 14% Y/Y), she cut the operating income estimate by 29% to $1.9 billion.
  • The guidance reflects Content Sales Licensing & Other OI guidance of $100 million below 4Q21 levels (a loss of $65 million) and higher than previously estimated costs from DIS continuing to scale back on 3rd party content licensing.
  • The guidance reflects higher DTC losses (now $1.35 billion vs. $800 million before) relating to costs associated with selling less owned content to outside 3rd parties and higher than anticipated content spending. It also reflects a higher tax rate.
  • These three downward revisions were partially offset by higher OI at the Parks segment than she had previously projected.
  • As a result, her Operating EPS estimate for 4Q22 falls by 45% to $0.35.
  • Her re-rating reflects that consensus estimates for DIS are too high owing to high near-term investment in DTC in 2022 and another year of unclear earnings contributions from linear TV and film releases as vaccines roll out slowly globally. 
  • She believes that DIS has a strong enough balance sheet to weather a longer COVID-induced earnings downdraft.
  • Longer-term, she believes DIS’s asset mix of both digital and physical assets (i.e., an Omniverse) maximizes its economic value capture.
  • Longer term, she believes DIS will be a winner in the streaming wars.
  • She believes that, for the metaverse to be successful, high-quality content libraries with a hit film and TV franchises will be required to drive mass adoption, which bodes well for DIS and all other entertainment companies with deep libraries and hit franchises.
  • Price Action: DIS shares traded lower by 0.96% at $96.51 on the last check Friday.
  • Photo Via Company

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