Disney's Earnings Miss Leads Entertainment Stocks Lower

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Disney CEO Bob Iger

While 'Star Wars' didn't save shares of Disney on Wednesday, it did wonders for Electronic Arts, perhaps illustrating why the conglomerate is shutting down its video games unit.

Shares of Walt Disney fell 4 percent on Wednesday — a day after posting quarterly financial results that didn't wow Wall Street — and might have dragged other entertainment stocks with it, as shares of some of the conglomerates dropped more than the broader markets.

Disney's earnings miss Tuesday "was the only blemish on the earnings season," said Tim Nollen of Macquarie Capital. Nevertheless, CBS sunk 2 percent Wednesday, 21st Century Fox was off 1.2 percent and Comcast, Time Warner, Sony and Viacom were each down 1 percent, as was the S&P 500.

"All network groups posted solid underlying ad growth in the March quarter, except Viacom," Nollen said in a research note rounding up the earnings season for entertainment stocks. "For some, growth was boosted by political spending, but a stable U.S. economy and ratings stabilization have also helped."

Disney said Tuesday it earned $1.36 per share in the latest quarter while analysts predicted $1.39, as Star Wars: The Force Awakens propelled the film segment but ESPN lost some subscribers and its ad revenue dropped.

Wall Street, in fact, has been worried about ESPN since August and the concern has spilled over to the TV business in general, which is grappling with cord-cutting, skinny bundles and competition from Amazon.com, Hulu and other online streamers.

Another nugget from Disney's earnings report Tuesday is that it is shuttering its video game business, which means 300 employees will lose their jobs. The company took a $147 million charge due to the move and, going forward, it will simply license its intellectual property to outside makers of video games.

While Star Wars couldn't lift Disney on Wednesday, it did wonders for Electronic Arts, which reported strong earnings a day earlier in large part to brisk sales of the video game Star Wars Battlefront, illustrating, perhaps, Disney's reasoning for shuttering its own games unit in favor of licensing to others.