Earnings Preview: A Look At Consumer Spending With DIS And PCLN

Entertainment empire Walt Disney Co DIS reports fiscal second-quarter earnings and online travel company Priceline Group Inc PCLN reports first-quarter earnings after the market closes on Tuesday, May 9.

Disney Earnings: ESPN Likely to Remain a Focus

The sports-television channel ESPN, part of the Media Networks division at DIS, has been an ongoing concern for many analysts that follow the stock. While it was once a prime part of its business, higher programming costs and subscriber losses as consumers shift to a la carte TV offerings have pressured ESPN revenues and margins, according to CFRA analysts.

The reason why subscriber loss at ESPN is a greater focus than its other channels is because it has earned more, approximately $5.05 per subscriber per month according to Trefis estimates, from cable and satellite companies such as Comcast Corporation CMCSA, Time Warner Inc TWX, and AT&T Inc. T subsidiary DirecTV than it does from its other channels.

Outside of its Media Networks, the company’s Parks & Resorts division is another large component of its results, generating 30% of fiscal 2016 revenues and 21% of earnings before interest and taxes, or EBIT, according to CFRA analysts. And finally, another main component of its business investors tend to focus on is its Studio division, which includes film, television, and home video businesses. This division includes results from its Pixar, Marvel and Lucasfilm franchises.

Moving on to earnings, DIS is expected to report earnings of $1.45 per share, up from $1.36 in FQ2 2016, on revenue of $13.48 billion, according to consensus third-party analyst estimates. Its stock recently hit a new 52-week high of $116.10 on April 27, but pulled back after announcing layoffs at ESPN.    

Looking at options activity around its earnings release, the market has priced in just over a 3% potential stock move in either direction for DIS, according to the Market Maker Move indicator on the thinkorswim platform. In short-term options trading leading up to earnings at the May 12 weekly expiration, calls saw higher volume at the 110 and 112 strike prices while volumes for puts were higher at the 110 strike. As of Monday morning, the implied volatility sits at the 64th percentile.   

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Consumer Travel with Priceline Earnings

PCLN’s goal is to be “the leading worldwide online travel reservation service” through its assortment of online restaurant and travel reservation services including: Booking.com, Priceline.com, Agoda.com, Kayak, rentalcars.com and OpenTable. Like DIS and other companies focused on travel and entertainment, PCLN’s business is largely impacted by consumer discretionary spending and global travel trends.

For online travel agencies PCLN and EXPE, hotel bookings tend to be a larger focus for analysts due to the fact that they have higher revenue margins compared to other segments like air ticket bookings, car rentals and cruises, according to Trefis research.

That mix of bookings is likely to impact PCLN’s margins in the first-quarter, when it’s expected to report earnings of $8.80 per share, down from $10.54 in Q1 2016, on revenue of $2.4 billion, according to consensus third-party analyst estimates. So far this year, shares have rallied almost 30%, and just hit a new all-time high of $1922.26  on May 5.

On the options side, traders priced in about a 4% potential stock move in either direction around PCLN’s earnings release, according to the Market Maker Move indicator. And in short-term options trading leading up to earnings at the May 12 weekly expiration, calls were active at the 2000 strike price while puts were active at the 1850 strike. Looking a little bit further out at the May 19 monthly expiration, calls were active at the 1920 strike while puts were active at the 1870 strike. As of Monday morning, the implied volatility sits at the 57th percentile.