Disney Rolls Despite Wall Street’s Reaction

disneyland

When you have something so good for so long, it’s easy to take it for granted. Disney (DIS) is just one of many examples of that in the stock market, with Wall Street expecting more and more from the company every quarter. The latest earnings release was impressive, as usual, but analysts called it “mixed.” Let’s take a look at the highlights and discuss why analysts are wrong:

Earnings per share beat the analyst estimate of $1.14, coming in at $1.20. That’s a 10% growth from last year.

Revenue was up 9% from this time last year, coming in at $13.51 billion. However, it missed the consensus by $40 million.

Revenues by segment were: media segments, up 12%; parks and resorts, up 10%; studio entertainment, flat; consumer products, up 11%; and interactive, down 4%.

What’s wrong with this picture?

The main reason Disney stock took a hit shortly after the announcement was the fact that it missed its revenue target. But there are two problems I have with that. First, a $40 million miss on $13.51 billion is a miniscule 0.3% within the target number. Shouldn’t that be considered in line with the target rather than a miss? Sure, smart investors will see the actual numbers and realize it’s not a problem. But the overall market is as irrational as can be, and investors simply saw the big MISS designation and sold. It’s irresponsible.

Second, let’s take a look at what this means on a macro standpoint. Disney’s revenues were up 9% from last year. Let’s compare that with the last four quarters:

FQ3 2015 saw 5.1% revenue growth from last year

FQ2 2015 revenue was up 7% year over year

FQ1 2015 revenue increased 8.8%

FQ4 2014 revenue was up 7% year over year

To put it bluntly, investors are blind to the fact that Disney hasn’t seen this type of revenue growth in years. So why quibble over a measly 0.3% revenue miss when we can see clearly that the company as a whole is stronger than ever. Its revenue growth is especially impressive considering its studio segment, which has been a huge growth driver over the past few years, saw flat revenue growth.