Magnifi Communities

The Walt Disney Company (DIS), a leading media and entertainment company, posted mixed results for its fiscal 2023 third quarter. The company reported third-quarter adjusted EPS of $1.03, beating analysts’ expectations of $0.98. Its revenue came in at $22.33 billion, lower than the consensus estimate of $22.53 billion.
The company is set to report its fourth quarter and fiscal full year 2023 financial results on November 8, 2023, after the market closes. Analysts expect DIS’ revenue and EPS for the fourth quarter (ended September 2023) to increase 6.2% and 137.6% year-over-year to $21.41 billion and $0.71, respectively.For the fiscal year 2023, the company’s revenue and EPS are expected to grow 7.7% and 4.2% from the prior year to $89.09 billion and $3.68, respectively.Shares of DIS have plunged more than 18% over the past six months and 5% year-to-date.
Let’s review in detail what has happened over the past few months and discuss the key factors that could influence DIS’ performance in the near term:
Recent Developments to Further Streaming Objectives
On November 1, DIS announced that it would acquire the remaining 33% stake in Hulu, LLC held by Comcast Corp.’s (CMCSA) NBC Universal (NBCU) for at least $8.60 billion, a deal that would give DIS complete control of the streaming service. Disney had run Hulu since 2019, when Comcast gave up its authority to Disney and effectively became a silent partner.
On September 11, DIS and Charter Communications, Inc. (CHTR) announced a transformative, multi-year distribution agreement that maximizes consumer value and supports the linear TV experience as the industry evolves. As part of the agreement, the majority of DIS’ networks and stations will be restored to Spectrum’s video customers.
Under this deal, Disney+ Basic ad-supported offering will be included in Spectrum TV Select Video packages. Also, ESPN+ will be included in the Spectrum TV Select Plus Video package, and ESPN’s flagship direct-to-consumer Service will be made available to Spectrum TV Select subscribers upon launch.In a joint statement, Robert A. Iger, DIS’ CEO and Chris Winfrey, President and CEO at CHTR, said, “Our collective goal has always been to build an innovative model for the future. This deal recognizes both the continued value of linear television and the growing popularity of streaming services, while addressing the evolving needs of our consumers.”
Also, on August 9, Disney+ announced that an ad-supported offering will be available in select markets across Europe and Canada starting November 1 after the successful ad-tier launch in the U.S.
Plans to Double Investment in Parks and Cruises Business
DIS said in a securities filing it will nearly double its planned investment in its parks segment to more than $60 billion over 10 years. With all other divisions struggling, Disney’s theme parks, experiences and products segment has been a bright spot in the third quarter. The division saw a 13% rise in revenue to $8.30 billion, mainly driven by strength from its international parks.
But the company’s domestic parks, particularly Walt Disney World in Florida, have witnessed a slowdown in attendance and hotel room occupancy.
Bleak Financial Performance in the Last Quarter
For the third quarter that ended July 1, DIS reported revenues of $22.33 billion, up 3.8% year-over-year, primarily driven by growth in its parks, experiences and products division. However, its top-line numbers came short of analysts’ expectations.
Revenues and operating income from the Disney Media and Entertainment Distribution segment dropped 1% and 18% year-over-year to $14 billion and $1.13 billion, respectively.
The company reported $2.65 billion in restructuring and impairment charges, dragging it to a rare quarterly net loss. Most of these charges were what DIS called “content impairments” related to pulling content off its streaming platforms and ending third-party licensing agreements. Disney’s net loss was $460 million, or $0.25 per share, compared to net income of $1.41 billion, or $0.77 per share, in the prior year’s quarter.
Excluding those impairments, the company recorded an adjusted EPS of $1.03, compared to $1.09 during the year-ago period.
Subscriber losses also continued, with the company reporting 146.1 million Disney+ subscribers during the third quarter, a decline of 7.4% from the prior quarter. Most subscriber losses were from Disney+ Hotstar, where Disney witnessed a 24% drop in users after it lost the rights to Indian Premier League cricket matches.
Disappointing Historical Growth
Over the past three years, DIS’ revenue grew at a CAGR of 8.7%. However, the company’s EBITDA and net income declined at CAGRs of 5.7% and 28.5%, respectively. Its EPS decreased at a CAGR of 31.1% over the same period.
Also, the company’s tangible book value and levered free cash flow declined at respective 4.6% and 6.5% CAGRs over the same time frame.
Streaming Division Faces Several Challenges
Global media and entertainment conglomerate DIS’ streaming division lost $512 million in the fiscal 2023 third quarter, compared to $1.06 billion during the same quarter of 2022. It brings its total streaming losses since 2019, when Disney+ was introduced, to more than $11 billion.
To make the streaming business more profitable, DIS’ CEO Bob Iger has shifted the focus at Disney+ from quick subscriber growth, which requires expensive market campaigns, to making more money from the existing Disney+ subscribers. The price for access to an ad-free version of Disney+ increased to $13.99 per month beginning October 12, previously $10.99 per month.
The company also increased the price of Hulu without ads to $17.99 per month, a 20% price hike. However, the monthly price of Disney+ and Hulu’s ad-based tiers and the annual price of ad-based Hulu remained unchanged.
“We’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier,” Mr. Iger told analysts on a conference call.Along with this pricing news, the company announced it will roll out tactics to mitigate password sharing.
A primary challenge Disney faces is heightened competition in the streaming industry. Among various video streaming giants, including Netflix, Amazon Prime Video, and emerging entrants such as HBO Max and Apple TV+, DIS must differentiate itself in terms of content quality and pricing to stand out in this crowded market.
Further, as consumers continue to feel the pressure of increasing prices and persistent inflation, they will cut back on their media and entertainment spending.
Continued Issues in Media Business
The company still relies on old-line channels such as ESPN, its flagship sports brand, and ABC for approximately a third of its operating profits. Cord-cutting, sports programming costs, and a soft advertising market hurt these outlets. DIS’ traditional channels had $1.90 billion in third-quarter operating income, a decline of 23% from a year earlier.
It was the second straight quarter in which Disney’s traditional TV business reported a sharp drop in operating income. The company cited lower ad sales at ABC, partially due to viewership declines, lower payments from ESPN subscribers, and increased sports programming costs.
Bottom Line
While DIS’ turnaround plan, including a mix of price hikes across its streaming operations, increasing ads, cutting costs, and other strategic initiatives, could drive long-term growth, the company grapples with several challenges. In August, Disney’s shares hit a new nine-year low below $84 as investors were unconvinced with CEO Iger’s turnaround plan.
The media and entertainment giant posted mixed financial results in the last reported quarter, plagued by streaming woes and increased restructuring costs resulting from pulling content from its platforms.
Further, DIS’ short-term prospects seem uncertain as the company continues to struggle with making its streaming business profitable, improving the quality of its films, and the slowdown in the traditional media business, which is challenged by declining subscribers and a soft advertising market.Disney also faces heightened competition. The streaming industry is exceptionally competitive, and Disney must strike a proper balance between content quality and prices to stand out in this crowded market and be profitable.
Given its deteriorating financials, decelerating profitability, and uncertain near-term prospects, it could be wise to avoid this stock now.

Paradoxically, the season traditionally associated with the supernatural often aligns with a propitious period for Wall Street. This is due to the ‘Halloween Effect,’ which generally casts a favorable light on financial markets. However, this was not the case in October, which proved somewhat unsettling for investors.
The SPDR S&P 500 ETF Trust (SPY) witnessed a decline in October, marking its third consecutive loss-registering month and the most prolonged losing streak since the beginning of the pandemic in 2020. Given the global upheavals, this decrease was not entirely surprising.The Russia-Ukraine conflict, geopolitical tension in the Middle East, and rising interest rates have negatively affected financial markets. As October’s harsh investment climate subsides, investors should prepare for possible additional volatility in November, known historically as one of the stock market’s most fluctuant months.
The U.S. stock market indices rallied nearly 2% intraday amid positive quarterly financial results and expectations that the Federal Reserve has concluded its interest rate hike campaign. The S&P 500 rallied by 79.92 points or 1.89%, reaching 4,317.78.Let’s look at some key factors that contributed to the recent market downturn and the potential implications they may hold for the near future. These will undoubtedly serve to drive future investment strategies:
Interest Rate Hikes
Nearly 20 months into the Federal Reserve’s rigorous monetary policy tightening, it remains ambiguous to officials whether financial conditions are adequately restrictive to control an inflation rate viewed as exceeding the central bank’s 2% objective.
The Fed kept the interest rates steady within the 5.25%-5.50% range, as predicted. Chair Jerome Powell has not ruled out further monetary tightening measures. Most investors have interpreted these elevated interest rates as precursors to a significant economic cooldown from a robust rate of 4.9% recorded in the third fiscal quarter of 2023.
Incoming economic indicators will chiefly influence decisions concerning future rate hikes. Depending on inflation trends, there is potential for interest rate cuts to be introduced during the second quarter of 2024 or in subsequent months. If the Fed manages to usher the economy towards a “soft landing,” implementing rate cuts while skirting a recession, this could potentially trigger a stock rally. However, should economic growth maintain its current momentum and inflation revive in the ensuing months, investors could face an unforeseen disenchantment.
Bond Rate
The Fed’s interest rate hike measure serves as a tactic to raise borrowing costs, consequently moderating economic activity and curbing inflation. Since inflation remains above its 2% target, it is plausible that interest rates will maintain their elevated status for an extended period.
Growing concerns about the longevity of these heightened interest rates have spurred a persistent rise in the U.S. 10-year yield. Moreover, robust U.S. retail sales, labor market data, and inflation figures exceeding expectations have contributed to this yield surge.
After remaining below 4% for most of the year, 10-year U.S. Treasury note yields crossed 5% – the first in 16 years. The recent escalation in interest rates across multiple bond market segments may be attributed to a combination of factors that have transformed the investment landscape.As of the beginning of October 2023, yields on short-term debt securities persist at an elevated level, culminating in an unconventional investment climate that prompts investors to consider the optimum positioning of assets within fixed-income portfolios.
Three primary factors underpin the current leap in bond yields — the Fed’s assertive approach to quelling inflation, the formidable strength of the U.S. economy so far into 2023, and an increasing supply of U.S. Treasury securities.
However, despite bond rates retreating after breaching the 5% level, the stock market has failed to bounce back as anticipated. There exists a possibility of bond rates recovering once again. Currently, investors are adopting a wait-and-see strategy, interested in discerning what transpires next.
Job Growth
The job market report surfaced amid the pivotal moment in the marketplace following the Fed’s recent policy verdict. It exposed a deceleration in job creation across the U.S. economy for October, confirming the prevailing anticipation for a slowdown. This may alleviate pressure on the Fed in their ongoing efforts to combat inflation.
According to the Bureau of Labor Statistics, nonfarm payroll growth totaled 150,000 in October, while the unemployment rate escalated to 3.9%. The unemployment rate has reached its highest since January 2022, as last month’s auto strikes negatively impacted the labor market.
Wages, a critical variable for tracking inflation and assessing worker leverage in the labor market, rose at a softer-than-anticipated pace last month. Average hourly earnings increased 0.2%, less than the projected 0.3% increase, whereas the 4.1% year-on-year increment slightly exceeded forecasts. Concurrently, the average working week slightly dipped to 34.3 hours.
ISM Manufacturing
Institute for Supply Management has reported alarming contraction within the manufacturing sector, triggering renewed anxiety about a potential recession. The ISM manufacturing index dropped to 46.7% last month, compared to September’s 49% reading. The data was weaker than expected, as economists predicted it to remain stable.
While an index below 50 might be viewed positively by some, indicating a slowing economy that could reduce inflation and potentially hasten Fed rate decreases, others are cultivating fears of an impending recession that could devastate stock value.
ISM Services
Services demand initially surged as American consumers readjusted to pre-COVID-19 life. However, this growth appears to have plateaued, with consumer preference again favoring goods over services. Expenditure on goods drastically exceeded outlays on services in the third quarter.
The services industry, constituting two-thirds of the U.S. economy, experienced its second consecutive month of slowdown in October. However, projections indicate potential momentum recovery in the future attributable to increased growth in new orders.
The ISM non-manufacturing PMI recorded its five-month low, falling to 51.8 from 53.6 in September. The Services PMI has been on a downward trend since experiencing a six-month peak in August.
New orders received by service businesses increased to 55.5 last month, though export orders suffered, reflecting the dollar’s increasing potency against the currencies of the U.S.’ principal trading partners.
Meanwhile, services inflation persisted, creating challenges for the Fed’s efforts to reduce inflation to its 2% target. The prices of services proved less responsive to interest rate increases. The measure of prices paid for services businesses for inputs decreased slightly to 58.6.Ultimately, the declining services PMI could signal a worrying contraction in the services sector that may deter investors and negatively impact stock prices.
CPI Report
The Consumer Price Index (CPI), a key indicator of economic health, has significantly decreased post its summer 2022 peak, which marked a forty-year record high of 9.1%. The CPI observed a 0.4% month-to-month increase in September and a 3.7% year-over-year increase.
However, the continuous elevation of energy and food commodity prices has triggered concerns regarding potential inflation. A sustained surge in fuel and food costs has the potential to undermine recent advances in mitigating inflation rates. Similarly, the ongoing Israel-Hamas conflict adds another level of uncertainty due to potential disruptions this could cause in the global energy market, particularly if the violence escalates to destabilize the oil-rich Middle East.
Considering these factors, inflation levels may remain elevated over a more extended period than what is currently projected by financial markets. This could necessitate the Fed to increase interest rates and maintain them at these higher levels over an extended duration.
If this circumstance arises, it would indicate that the Fed’s battle against inflation is far from over. This could undermine investor confidence in the stability of the financial market.
Q3 Earnings Season
As Wall Street sails into the third quarter’s reporting season, investors are keenly anticipating earnings slated for release in November. Analysts’ predictions for the quarter have taken a significant upturn, with current projections anticipating a year-over-year earnings growth rate of 2.7% for S&P 500 firms, according to data by FactSet.
Bottom Line
Amid forthcoming U.S. polls, shifting monetary policies, and mounting Middle East tensions, a general air of unease is inescapable in the current climate. Citigroup Inc’s Jane Fraser said, “We’re sitting here with a backdrop of the terrorist attack in Israel and the events that have unfolded since, and it’s desperately sad. So, it’s hard not to be a little pessimistic.”
Experts are slowly retreating from their predictions of a soft landing on the economic front, with a growing faction anticipating a significant downturn by 2024. Paul Singer from Elliot Management speculates that such a decline or a noticeable recession might encourage the Fed to reduce interest rates to as low as 1%-3%, a figure considerably lesser than projections for future interest rates. Citing fears of an increasingly volatile global economy, Singer urges investors to tread cautiously.
In addition to deteriorating manufacturing and services PMI, the consumers, accountable for approximately 70% of the economic activity, are under substantial duress. Credit card debt and auto loan balances have reached historical highs while student loan repayments – after more than three years of taxpayer-funded pause – resume for over 40 million Americans. These mounting financial pressures, coupled with high interest rates, are creating formidable economic challenges that could likely impact earnings moving forward.
The rise of U.S. Treasury yields amplifies the allure of bonds over stocks, exacerbating a pre-existing equity sell-off and potentially impacting long-term equity performance. There is very little risk premium in buying the S&P 500 compared to the “risk-free” rate provided by U.S. Treasuries.Current equity valuation perhaps relies heavily on unrealistically optimistic earnings estimations. If higher interest rates do indeed dampen the economy’s pace, as many analysts predict, achieving the desired targets might become an uphill task. The S&P 500 companies, according to LSEG IBES, are projected to escalate their earnings by 12.1% in 2024. Should excessively high interest rates persist, attaining such targets appears challenging.

The Biden Administration has reinforced measures to curb the semiconductor exports of U.S. chipmakers to China, effectively plugging regulatory loopholes identified last year.
This move enhances the stipulations set forth by the U.S. Commerce Department, which unveiled stringent export control rules that were first established in October 2022. The revised regulations will block some AI chips beneath the existing technical parameters. Additionally, companies will now be required to declare shipments of certain other products. These fresh limitations will bolster the effectiveness of American controls and limit ways to circumvent these restrictions further.
This prohibition is part of a broad legal and financial policy strategy to promote U.S. national security, especially considering heightened competition with China. These unprecedented measures are intended to constrain Beijing’s technological and military ambitions. The initiative seeks to halt supplies of critical technology to China that could be utilized across various sectors, including advanced computing and the production of weaponry.
These heightened restrictions on tech exports to China coincide with American efforts to ease strained relations between the two largest global economies. This shift in policy toward China heralds a significant turn in U.S.-China tech diplomacy.
Last year, government restrictions prevented the Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) from shipping two of its most technologically advanced AI chips to Chinese customers – chips recognized as an industry-standard in developing chatbots and similar AI systems.
However, NVDA quickly adapted by releasing new, less sophisticated variants for the Chinese market that complied with U.S. export controls. They created the H800 semiconductor chip to replace the previously banned H100 for China, along with the development of the A800 to replace the A100 for Chinese firms. The H800 boasts comparable computing power to the company’s more potent H100 chip in specific AI capacities, albeit with some performance limitations.
However, according to NVDA’s recent SEC filing, these restrictions apply to several of the company’s chips, including the A100, A800, H100, H800, L40, L40S, and RTX 4090. This affects all systems sold with these chips, including their DGX and HGX systems.
Previously, in June, NVDA’s CFO Colette Kress downplayed the impact of the potential export restrictions, asserting that they would not yield an “immediate financial impact” but that subsequent limitations, unexpected at the time, “would have an immediate material impact on our financial results.”
The U.S. chipmaker is at risk of losing $5 billion worth of orders from China due to the chip export ban. The orders were placed for 2024 by leading Chinese tech giants such as Alibaba, ByteDance, and Baidu. Before the imposition of the ban, NVDA expected to begin fulfilling some of these orders by November 15, the initial cut-off date for blocking shipments of advanced AI chips to China. Unless the U.S. government issues the required licenses necessary to make the deliveries, NVDA may have to cancel the lucrative orders.
Despite looming challenges, NVDA has consistently exceeded Wall Street’s expectations with its strong earnings performance over the previous two quarters. This success is primarily attributed to the surge in demand for computer chips that power the ongoing AI revolution. Analysts had collectively forecasted earnings per share of $2.07 and sales of $11.09 billion for the last reported quarter. However, NVDA surpassed these estimates by posting earnings of $2.70 per share and sales of $13.51 billion.
Strategic collaborations between countries are anticipated to spur AI adoption worldwide. Tech companies of varied sizes are earmarking substantial investments in AI data centers to stay competitive. Latest projections suggest that the market for AI semiconductors will grow at a 30.3% CAGR to reach $165 billion by 2030. This surge in demand could favor NVDA owing to its current dominance in the AI chip industry.
To maintain its competitive edge, NVDA persistently advances its technological offerings like its recent GH200 Grace Hopper Superchip platform. The new chip platform, engineered explicitly for certain AI applications, including LLM and generative AI, could keep the company one step ahead of its rivals in the AI chip market.
Furthermore, NVDA accentuated an already robust quarterly report with a projected revenue of approximately $16 billion for the upcoming quarter, surpassing average analyst forecasts. However, concerns regarding export regulations imposed on China could jeopardize the company’s continued streak of success.
For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 169.6% and 481.3% year-over-year to $15.99 billion and $3.37, respectively.
One of the significant contributors to this year’s 23% increase in the Nasdaq index is NVDA stock, which is currently experiencing a nearly 16% decline from its record peak closing value of $493.55, achieved on August 31.
Following the recent implementation of U.S. regulations, NVDA’s share price saw about a 5% decrease. It trades beneath its 50-day and 100-day moving averages, respectively, indicating a downtrend.
However, Wall Street analysts expect the stock to reach $645.53 in the next 12 months, indicating a potential upside of 55.8%. The price target ranges from a low of $560 to a high of $1,100.
Bottom Line
Earlier this year, NVDA earned a coveted spot in the $1 trillion club following an impressive surge in its revenue guidance due to substantial order volume from the burgeoning generative AI industry. Notably, its stock has recorded a remarkable 180% increase year-to-date, an extraordinary achievement for an enterprise of its size.
This soaring valuation can be chiefly attributed to the enthusiasm surrounding NVDA’s high-performance chip technology – currently in high demand due to the growing focus on AI and ML capabilities being deemed essential by several industries.
With NVDA’s shares trading at 19 times sales and 38 times earnings, it is certainly priced for perfection, signifying that any stumble could significantly affect it.
Despite the company’s previous assertion that restrictions will unlikely cause short-term impact, now they appear to have the potential for long-term consequences. A projected robust quarter suggests NVDA shares could prove a solid long-term investment.
However, given the ongoing market instability, tepid price momentum and varying analyst estimates, it may be prudent to wait for a better entry point in the stock.
NVDA is preparing to announce its financial results for the forthcoming quarter within a few weeks. This report will help better assess the impact of the export restrictions on the company’s financials.