Disney: Results Beat Expectations, But Questions Remain

Published on

Walt Disney Co (NYSE:DIS)’s Revenue rose 34% to $21.8bn in the first quarter, which was better than analyst expectations of $20.9bn. There was growth in both business areas, with the most dramatic increase coming from Disney Parks, Experiences and Products. Group operating profit more than doubled to $3.3bn, which was also much better than expected.

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2021 hedge fund letters, conferences and more

A Look At Disney's Earnings

The Media & Entertainment Distribution business saw total Disney+ subscriptions rise 37% to 129.8m, while ESPN+ and Hulu also posted growth. The average monthly revenue per paid subscriber for Disney+ Hotstar increased from $0.98 to $1.03 due to launches in new territories with higher average prices. Operating losses for Direct-to-Consumer products rose 27% to around $600m, as higher production, marketing and technology costs weighed. There were also higher programming and production costs in the traditional cable business, meaning operating profit also fell. For the Media & Entertainment division as a whole, operating profit fell 44% to $808m.

Parks, Experiences & Products saw revenue climb from $3.6bn to $7.3bn, as travel trends, park footfall and cruise ship sales improved. However, Disney also said it’s continuing to limit capacity for safety reasons. The division saw operating profits swing from a $119m loss to profit of $2.5bn. The group said: “increased operating income at our international parks and resorts was due to growth at Disneyland Paris and Hong Kong Disneyland Resort”.

Total group profit was boosted by the non-repeat of $113m of restructuring and impairment charges this time last year.

Free cash outflows widened by $505m, reflecting higher payments due, other obligations and spending for TV content. Net debt stood at $39.7bn.

Disney shares rose 8.8% in after-hours trading.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:

“It’s impossible not to be impressed by recent growth in Disney’s streaming subscriptions. However, the market cares a great deal about the streaming business, and churning out the levels of growth expected is only going to become a more difficult task. If you didn’t get a Disney+ subscription while trying to home-school in lockdowns, chances are you may never get one. For now, Disney is defending its competitive position against older players, but this isn’t the walk in the park one might expect from a company with a content cupboard already brimming with famous blockbusters.

Disney is having to spend heavily to maintain its edge, taking free cash flow with it. And while the addressable market is huge – inflation may throw a spanner in the works. Household budgets under review means luxuries like multiple streaming subscriptions may come under fire. Disney needs customers to continue signing up in droves, or plans to scale and dig itself out of loss making territory will get thrown.

Disney parks are doing much better than feared, despite ongoing Covid fears. Covid related costs are grazing the bottom line, but this isn’t the biggest question mark. A lot of Disney’s content has had a refresh in recent memory, as public enthusiasm for classic princess stories has waned. While some way off, we could be looking at a situation where Disney has to spend heavily to address changing tastes. For now though, the group’s indomitable intellectual property is still serving it well – getting customers through the gates is one thing, but being able to sell them mountains of branded food, toys and gifts is what truly makes Disney a remarkable business.

The recent tech sell off has been Disney’s idea of a villain, but so far this year the group’s doing enough to be its own hero in the face of the market’s adversity.”

About Hargreaves Lansdown

Over 1.67 million clients trust us with £138.0 billion (as at 30 September 2021), making us the UK’s number one platform for private investors. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month.