Walt
Disney
has disclosed ESPN’s financial figures separately for the first time. The sports broadcaster is still a significant profit engine for its parent company, but falling revenue and a relatively low operating margin show its challenges.
Disney
(ticker: DIS) published a filing Wednesday that showed ESPN and other sports-related businesses made an operating profit of $1.48 billion in the nine months to July 1. Their revenue was $13.2 billion, down 1.3% from the same period a year earlier.
Earnings from ESPN therefore represented about 19% of Disney’s operating profit for that same period. Disney separated out the unit’s financials for the first time as part of a restructuring that it hopes will help attract external investment in ESPN, such as from the sports leagues whose games it shows to viewers.
At a first glance, the figures don’t suggest Disney is in line for a windfall.
KeyBanc analyst Brandon Nispel said the figures were negative for his previous estimation of ESPN’s value at about $30 billion, saying investors would likely be disappointed by its midteens percentage operating margin.
“We suspect it will be difficult for Disney to drive much better operating income given rising sports costs, including the upcoming NBA renewal,” Nispel wrote in a research note.
Disney CEO Bob Iger has said the company’s plan is for ESPN to eventually pursue a full direct-to-consumer model—its existing streaming service ESPN+ only offers limited live sporting events—reducing the chances of a spinoff of the business. Instead, he has said the company is considering strategic options for its linear TV channels such as ABC, FX, and National Geographic.
“This update can help set some expectations for both an eventual ESPN OTT [over-the-top] service’s financials, and can help set some parameters around valuation of any possible asset divestures,” Macquarie analyst Tim Nollen wrote in a research note. An over-the-top service would follow the direct-to-consumer model Iger has said ESPN will pursue.
Nollen has a Neutral rating and $94 target price on Disney stock. Disney shares were up 0.4% at $85.03 in premarket trading Thursday.
Write to Adam Clark at [email protected]
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