Stock Analysis

Disney, Oracle and Adobe: Our lukewarm take on recent news and earnings

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NYSE:DIS
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(“What’s a lukewarm take?” you ask – well, it’s definitely not a hot take – we would like to think it’s a more considered, insightful, and useful take on the news.)

Disney: Avatar is meaningful for this quarter, managing costs is key in the long term

Disney’s (NYSE: DIS) share price fell 4.7% on Monday after Avatar 2 had a weaker-than-expected opening weekend. The stock price hit a new 52-week low and is now down 57% from its May 2021 peak.

The film earned $134 million in the US over the weekend, compared to the $175 million expected by analysts. However Disney’s own projection was for $135 to $150 million, so this won't be way off the mark.

Our take: James Cameron, Avatar’s producer implied that the movie will need to make around $2 bln to break even - so there is a lot at stake. But it's way too early to say that the Avatar sequel won’t turn into a big earner for Disney.

Disney is expected to earn $0.80 a share during the current quarter which is about $1.45 bln. So, the amount Avatar ultimately brings in could have a very meaningful impact on EPS for the quarter, and the stock price is likely to be very sensitive to the success of the movie over the next few weeks.

But in the longer term, it’ll probably be cost-cutting that delivers value. In the last 12 months, Disney’s revenue was $82 bln, and only $3.2 bln of that made it to the bottom line. That leaves the company with a lot to work with.

NYSE: DIS earnings and revenue 21st December 2022

Is Oracle a growth company again?

Oracle (NYSE: ORCL) released an impressive set of second-quarter results last week

Revenue was up 18% year-on-year and comfortably ahead of consensus estimates. Normalized EPS of $1.21 also came in ahead of estimates, though GAAP EPS were slightly lower than expected.

The highlight of the results was the impressive cloud growth, with:

  • Cloud revenue up 43% to $3.8 bln, which is 31% of total revenue.
  • Cloud IaaS (infrastructure as a service) revenue  up 53% to $1 bln
  • Cloud SaaS (software as a service) revenue up 53% to $1 bln

Furthermore, these growth numbers were quite a bit higher in constant currency terms.

Our take: The stock price initially gapped higher after the results, but quickly sold off. It appears investors saw this as an opportune time to take profits after the stock’s 40% rally since late September.

NYSE: ORCL P/E vs Fair P/E, 21st December 2022

Ahead of the results, Oracle’s trailing P/E ratio was 37x. With the updated trailing 12-month EPS number, it has fallen to 24.4x, which is well below the Simply Wall St Fair P/E ratio of 40.7x. (The fair P/E is a feature on the Simply Wall St stock reports which approximates the expected P/E ratio by accounting for earnings growth forecasts, profit margins, and risk factors. )

Oracle’s growth hit a wall in 2011 and revenue remained flat through most of the last decade. The company was also late to join the cloud revolution, and when it did it took time to get traction. But, cloud now makes up a meaningful chunk of revenue and it’s growing quickly. The key question here is: how sustainable is the current cloud growth rate? Check out the full report on Oracle, which covers the valuation, analysts' expectations, and risks to be aware of.

Adobe looks fully valued 

The market’s response to Adobe’s (Nasdaq: ADBE) fourth-quarter earnings report was generally positive. Revenue and EPS were up year-one-year and both slightly ahead of consensus, but growth has continued to slow since 2021. 

Our take: Adobe is one of the companies that is a very obvious beneficiary of the ongoing digital transformation of the global economy. The company’s suite of creative tools is essential for creators from graphic designers to web developers, video editors, and photographers. If the acquisition of Figma goes ahead, it will further strengthen its product portfolio and add to its competitive advantage.

Adobe also happens to have recurring revenue with very wide margins.

The tricky part for investors is assessing a realistic growth trajectory and valuation. The price/multiple of 32x is quite high when you consider top and bottom line growth will probably fall into single figures during the current quarter. 

Analysts expect earnings growth to increase to around 15% in 2024, and beyond that very few analysts are prepared to make a call. Until there is a catalyst to reignite growth, upside could be limited.

Nasdaq: ADBE Revenue, earnings, and cashflow, 21st December 2022

What are the risks and opportunities for Walt Disney?

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide.

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Rewards

  • Trading at 24.9% below our estimate of its fair value

  • Earnings are forecast to grow 25.74% per year

  • Earnings grew by 58.5% over the past year

Risks

No risks detected for DIS from our risks checks.

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Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Richard Bowman

Richard Bowman

Richard is an analyst, writer and investor based in Cape Town, South Africa. He has written for several online investment publications and continues to do so. Richard is fascinated by economics, financial markets and behavioral finance. He is also passionate about tools and content that make investing accessible to everyone.

About NYSE:DIS

Walt Disney

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide.

Proven track record with adequate balance sheet.