Walt Disney’s New Reporting Structure: Analyst Reactions
Barclays Analysts on the Reporting Structure Change
Barclays analysts have weighed in on Walt Disney’s long-anticipated recast financials for its new reporting structure. They highlighted the separation of the sports business into a separate segment from the entertainment business as the main change.
The reported margins for fiscal year 2023, excluding the impact of ESPN+ losses, were lower than expected at 14.4% year-to-date. However, this can be attributed to the inclusion of the company’s Indian sports channels in the sports segment, which incurred significant costs for Cricket rights.
ESPN’s domestic linear margins for this year appear to be approximately 20.4% year-to-date, compared to 26.1% for the full year of 2022. Barclays noted that ESPN’s domestic operating income for the first three quarters of the current fiscal had margins approximately 100 basis points lower than the same period last year.
Bernstein Analysts on Sports Margins
According to analysts at Bernstein, Walt Disney allocated 56% of the revenue from its old Linear Networks to the Sports segment. However, the aggregate operating income margin for Sports was only 11% over the three quarters. The analysts acknowledged that while this seems low, it is understandable considering the high cost of sports rights.
They further emphasized that the Sports segment’s topline remains stable, but its margin is “lumpy.” This indicates the challenges ESPN faces as it does not own the underlying content and must prove its worth as a sports aggregator.
A Unique Approach for ESPN
Analysts at Bernstein also highlighted the fundamental challenge ESPN faces in not owning the content it broadcasts. With the escalating cost of sports rights, Disney needs to demonstrate that ESPN can be a successful sports aggregator to justify its value.
In conclusion, the recent changes to Walt Disney’s reporting structure have garnered mixed reactions from analysts. While some express concern over lower-than-expected margins, others understand the complexities of the sports segment. ESPN’s ability to navigate these challenges and prove its worth as a sports aggregator will be crucial for its success.
