ii view: is Disney's share drop an opportunity?
Covid has hurt and TV subscribers disappoint, but Disney parks are largely back open.
14th May 2021 11:34
by Keith Bowman from interactive investor
Covid has hurt and TV subscribers have disappointed, but Disney's parks are largely back open.
Second-quarter results to 3 April 2021
- Revenue down 13% to $15.6 billion
- Adjusted earnings up 32% to 79 cents per share
- Disney’s streaming subscribers now total 158.8 million, up from 146 million 3 months ago
- Disney plus subscribers of 103.6 million, up from nearly 95 million 3 months ago
Chief executive Bob Chapek says:
“We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fuelling long-term growth for the Company. This is clearly reflected in the reopening of our theme parks and resorts, increased production at our studios, the continued success of our streaming services, and the expansion of our unrivalled portfolio of multiyear sports rights deals for ESPN and ESPN+.”
ii round-up:
Subscribers to Walt Disney's (NYSE:DIS) relatively new Disney+ streaming service missed analysts’ forecasts in these latest results, coming in at 103.6 million. That is still up from nearly 95 million just three months ago but short of forecasts nearer to 109 million.
Disney shares fell by around 3% in after-hours US trading, having more than doubled since pandemic lows in March 2020. Shares for streaming rival Netflix (NASDAQ:NFLX), which also recently reported disappointing subscriber numbers, are up by more than a third.
However, Disney again repeated its expectation for plus subscribers to grow to between 230 million and 260 million by 2024. Total streaming subscribers including its Hulu and ESPN+ offerings now number nearly 159 million. That compares to Netflix’s recent total of nearly 208 million.
Disney’s parks business continued to suffer under closures and disruption from the pandemic. Sales for its parks, experiences and products division fell by 44% to $3.2 billion. Disneyland Resort and Disneyland Paris parks were closed during the quarter, with its cruise ship business also still suspended. Management estimated that Covid had cost the division around $1.2 billion in lost operating income during this latest quarter.
More favourably, its two California parks reopened in late April. The results also came on the same day that the US Centre for Disease Control and Prevention loosened its mask wearing guidance for those now fully vaccinated.
Total Disney revenues down 13% to $15.6 billion missed analysts forecasts nearer to $15.9 billion, although adjusted earnings of 79 cents per share exceeded estimates.
ii view:
Disney offers investors a one-stop entertainment business. Its brands include Marvel, Pixar Animation and the Star Wars franchise. It now operates across the three areas of Media and Entertainment Distribution; Disney Parks, Experiences and Products; and the three content groups of Studios, General Entertainment and Sports, focused on developing and producing content for streaming, cinema and traditional TV or linear networks.
During its last full financial year, Media and Entertainment Distribution generated just over 60% of sales, Parks, Experiences and Products just over a quarter, and Studio Entertainment the remaining 10%. Geographically, the Americas accounts for 80% of sales, with the balance split almost equally between Europe and Asia Pacific.
For investors, the Covid aspect cannot be dismissed. Disney's Paris theme park is still closed and overseas tourist travel to its parks is likely to return only slowly. But the rollout of vaccines in its core US market has been strong. Subscriber numbers for its streaming operations are also still growing and the company’s strength across North American sports content should not be overlooked. In all, Disney’s long and vast experience in the entertainment world continues to leave it as one to own long-term for many global investors.
Positives:
- Diversity of businesses, strong brands and media content bank
- Growing streaming services
Negatives:
- Covid-19 has closed or disrupted many of its businesses
- Dividend payment suspended
The average rating of stock market analysts:
Buy
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