Interactive Investor

ii view: latest results are no fun for Disney shareholders

11th May 2023 15:29

by Keith Bowman from interactive investor

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Back under its former boss and looking to concentrate on profitable growth. We assess prospects. 

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Second-quarter results to 1 April

  • Revenue up 13% to $21.8 billion
  • Adjusted earnings per share down 14% to $0.93 per share
  • Disney plus subscribers of 157.8 million, down from 161.8 million three months ago

Chief executive Bob Iger said:

“We’re pleased with our accomplishments this quarter, including the improved financial performance of our streaming business, which reflect the strategic changes we’ve been making throughout the company to realign Disney for sustained growth and success. From movies to television, to sports, news, and our theme parks, we continue to deliver for consumers, while establishing a more efficient, coordinated, and streamlined approach to our operations.”

ii round-up:

Entertainment giant The Walt Disney Co (NYSE:DIS) detailed a second consecutive quarterly drop in Disney Plus streaming subscriber numbers, as the company back under former boss Bob Iger looked to concentrate on profitable growth. 

Subscriber numbers for Disney Plus fell 2% from the prior quarter to 157.8 million, shy of Wall Street hopes of a 1% gain and followed a similar fall in the prior first quarter. 

Shares in the Dow Jones index constituent fell by around 8% in post results trading having come into this latest news up around 16% year-to-date. That’s similar to both Netflix Inc (NASDAQ:NFLX) and Sky owner Comcast Corp Class A (NASDAQ:CMCSA) and ahead of a 2% gain for the Dow 30 index itself. 

Sales for its Direct-to-Consumer business and including its streaming businesses rose 12% year-over-year, helped by customer subscription price increases for Disney Plus, reducing losses for the unit by a quarter year-over-year to $656 million. 

However, profits for its more traditional linear networks business and including channels such as ESPN and ABC news declined by just over a third to $1.83 billion, hindered by higher sports programming and production costs and reduced advertising demand.

Sales for its Parks, Experiences and Products division rose 17% to $7.8 billion, pushing profit up by almost a quarter to $2.2 billion, helped by a recovery in demand for its Asian parks in the wake of the pandemic. 

Overall group revenues climbed 13% from the second quarter in 2022 to $21.8 billion, with adjusted earnings down 14% to $0.93 per share, both broadly matching Wall Street estimates. 

ii view:

Started in October 1923 by brothers Walt and Roy, Disney today offers investors a one-stop entertainment business. Its many brands include Pixar, Marvell Studios, Lucasfilm, 20th Century Studios, ABC News, National Geographic and Hulu. Its ESPN tv networks, originally standing for Entertainment and Sports Programming Network, still includes both traditional and sports channels.

For investors, the intense competition across the streaming sector, including stock market titan Amazon.com Inc (NASDAQ:AMZN) and its prime service, should not be forgotten. Business costs generally remain elevated, an ongoing cost-of-living crisis may see consumers cut non-essential services like streaming, while the return to the previous head Bob Iger still leaves questions and uncertainty over the likely future leader.  

On the upside, Disney previously detailed $5.5 billion of planned cost reductions, cuts which management hope will help it reinstate the dividend before the end of the current financial year, having halted it at the start of the pandemic. Its exposure to sports content remains invaluable given its ability to generate large audiences, while its decades of creating popular content need to be remembered. 

A lot of froth has been taken out of the share price, and diversity of its businesses means growth in one division counters challenges in another. While this iconic entertainments giant works in a fiercely competitive industry, it typically delivers over the long term.

Positives: 

  • Geographical diversity, strong brands, and media content bank
  • Cost cutting

Negatives:

  • Cost pressured consumers may cut entertainment spending
  • Dividend payment suspended

The average rating of stock market analysts:

Buy

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