Disney (DIS) is set to report its fiscal third quarter earnings after the bell on Wednesday after the company revealed its flagship sports network ESPN has struck a $2 billion deal with Penn Entertainment (PENN) to launch ESPN Bet, a branded sportsbook.
This marks the network's first foray into the world of sports betting. ESPN is licensing its brand to Penn versus launching its own sportsbook.
The news comes as investors are bracing for a challenging report, with questions about ESPN's direct-to-consumer push and the future of Disney's TV assets. Last month, Iger said he would take an "expansive" look at the entertainment giant's traditional TV assets, signaling the potential for strategic options that could include a sale. He also said the company is open to strategic partners, either through a joint venture or part ownership, for ESPN to enable it to make the transition to streaming.
Here's what Wall Street expects, according to Bloomberg consensus estimates:
Revenue: $22.52 billion versus $21.50 billion in Q3 2022
Adj. earnings per share (EPS): $1.00 versus $1.09 in Q3 2022
Total Disney+ subscribers: 154.8 million versus 152.1 million in Q3 2022
Disney Parks, Experiences and Products revenue: $8.25 billion versus $7.39 billion in Q3 2022
Disney Media and Entertainment Distribution revenue: $14.36 billion versus $14.36 billion in Q3 2022
Disney shares have plummeted 20% over the past six months as Bob Iger, who stepped back into the CEO position in November and recently accepted a contract extension through the end of 2026, attempts to reset the company's strategy.
Disney's myriad challenges
Disney+ is expected to see more subscriber declines as analysts estimate subscribers dropped by another 3.6 million in Q3 from the prior quarter, after the platform shed 4 million paying users in Q2.
He has consistently reaffirmed the company's outlook of reaching streaming profitability by the year 2024, although it will be a bumpy road ahead.
Advertising will also continue to be bumpy, echoing competitors. Linear network revenues are expected to have fallen 6% in the quarter compared to the year-ago period.
On the parks side of the business, operating income is projected to come in at $2.39 billion, above Q3 2022's $2.19 billion total. Analysts have remained cautious on the parks segment, however, as demand appears to have slowed, coupled with heightened risks to margins amid inflation.
Meanwhile, the company's studios division, which is already grappling with a double strike in Hollywood, will likely take a hit following the disappointing theatrical releases of films like "The Little Mermaid" and Pixar's "Elemental."
The future of ESPN
As ESPN officially enters the sports betting arena, investors will likely have even more questions when it comes to the future of the network.
Late Tuesday, ESPN and Penn Entertainment announced they will be launching ESPN Bet, a branded sports book.
As part of the deal, Penn will pay ESPN $1.5 billion over the next 10 years, with ESPN holding warrants to purchase roughly 32 million shares of PENN worth $500 million, which will vest over the same period.
Penn sold Barstool Sports back to founder Dave Portnoy after fully purchasing Barstool earlier this year.
"Sports stands very tall in the media landscape for its ability to convene millions of people all at once," Iger said last month, reiterating his bullish stance on ESPN and confirming plans to take the network fully over-the-top as a direct-to-consumer (DTC) platform.
Disney has held exploratory talks with major sports leagues including the NFL, NBA, NHL, and MLB regarding strategic partnerships, according to a source with knowledge of Disney's plans. Variety reported last week former Disney executives, Tom Staggs and Kevin Mayer, have been tapped as advisers to help Iger with ESPN's streaming transition.
Still, analysts and media watchers have cautioned the full transition to streaming will be a difficult journey, particularly when it comes to consumers footing the bill for an additional streaming service versus watching sports as part of the cable bundle.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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