ESPN's subscription base declined by about 2% in 2015, The Wall Street Journal reported.
If ESPN subscriber declines accelerate by one percentage point in 2016, the potential $500 million decline will reflect the sensitivity of ESPN's profitability to small changes in subscriber growth amid a media landscape facing what could be massive disruption, the Journal added.
Analysts at Barclays noted that ESPN's business model and the corresponding operating leverage have been key to Disney's performance over the last few years.
"We have been more cautious on Disney relative to Wall Street due to our belief that Disney is not isolated from the secular trends that are being priced into the rest of the media industry," Barclays analysts said.
With ESPN having hit peak penetration and now losing subscribers, operating leverage could be a drag on future margins, especially in a more fragmented sports market, Barclays added.
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Separately, TheStreet Ratings team rates DISNEY (WALT) CO as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate DISNEY (WALT) CO (DIS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DISNEY (WALT) CO has improved earnings per share by 13.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DISNEY (WALT) CO increased its bottom line by earning $4.25 versus $3.38 in the prior year. This year, the market expects an improvement in earnings ($5.06 versus $4.25).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Media industry average. The net income increased by 10.6% when compared to the same quarter one year prior, going from $2,245.00 million to $2,483.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 5.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Media industry and the overall market, DISNEY (WALT) CO's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- The current debt-to-equity ratio, 0.33, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.84 is somewhat weak and could be cause for future problems.
- You can view the full analysis from the report here: DIS Ratings Report