Why Tomorrow's Disney Earnings Could Move the Dow

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The stock market has posted solid gains Wednesday as investors stay confident that policymaking tactics from the Federal Reserve and other central banks will sustain the bull market. As of 12:35 p.m. EST, the Dow Jones Industrials are in record territory with a gain of 98 points. Earnings season is starting to wind down after hitting its peak in the past couple of weeks, but Disney will report tomorrow. What Disney tells us about the state of the media world could have broad implications for the entire stock market.

Disney will release its results at about 4:15 p.m. EST tomorrow, after the market closes. The company will follow up its release with a conference call scheduled to begin at 5 p.m. EST.


Disney has done an admirable job over the decades of building on the foundation of its original studio-film success to establish a multimedia empire. From the creation of its first theme park in the 1950s and the premiere of its Disney Channel cable offering in 1983, to its landmark decision to buy Capital Cities/ABC in 1995, the company has steadily built up its prowess to encompass television, travel and leisure, and video gaming, in addition to its staple movie-production business.

As much exposure as its studio entertainment division gets, Disney's bread and butter is its cable-network division, which relies on sports network ESPN and was responsible for significantly more than half of the company's total 2012 operating profits. Parks and resorts are also a key part of the business, bringing in a quarter of total revenue and producing $1.9 billion in pretax operating profits last year.

By contrast, studio entertainment hasn't been a big driver of profitability for Disney. That could be set to change, though, as the company further leverages the acquisitions of major players Pixar, Marvel, and Lucasfilm. Investors can expect to see profits from key franchises based on multiple Avengers characters multiply, with effects stretching throughout the company as Disney adroitly builds cross-platform tie-ins to boost marketing exposure.

Since General Electric sold its stake in NBC Universal, Disney is the only direct player in the television and movie business in the Dow. But Disney's content increasingly affects the prospects for a wide range of companies in related industries. In tech, for instance, Amazon.com and Netflix are at the epicenter of the battle to deliver high-quality content to tens of millions of households across the nation, and Disney's content has been a valuable carrot to dangle in front of both companies to try to maximize its value. Even as Netflix seeks to create more of its own content, it's likely to keep turning to professional content-producers like Disney to get the best results. Other tech companies within the Dow are looking at alternative ways to deliver desirable content, seeking to hold off the rapid growth of Netflix and also stymie Amazon's challenge in the process.

For Disney, long-term growth should continue regardless of any short-term setbacks that could temporarily weigh on growth. For the Dow, Disney's success points to the vast opportunity that content-generation represents not just in entertainment, but throughout the media world.

Watch out for the television wars
Disney is at the center of the $2.2 trillion media war that's pitting cable companies against tech giants like Netflix. The Motley Fool's shocking video presentation reveals the secret Steve Jobs took to his grave, and explains why the only real winners are these three lesser-known power players that film your favorite shows. Click here to watch today!

The article Why Tomorrow's Disney Earnings Could Move the Dow originally appeared on Fool.com.

Fool contributor Dan Caplinger owns shares of Walt Disney. The Motley Fool recommends Amazon.com, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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