ii view: streaming growth disappoints at Disney

Higher costs and slower streaming growth sit against another quarterly amusement parks profit. Buy, sell, or hold?

Fourth-quarter results to 2 October 2021

• Revenue up 26% to $18.53 billion
• Adjusted earnings of 37 cents per share, up from a loss of 20 cents in Q4 2020
• Disney’s streaming subscribers now total nearly 179 million, up from 174 million 3 months ago
• Disney plus subscribers of 118.1 million, up from nearly 116 million 3 months ago

Chief executive Bob Chapek says:

“This has been a very productive year for The Walt Disney Company, as we’ve made great strides in reopening our businesses while taking meaningful and innovative steps in Direct-to-Consumer and at our Parks.”

“We continue to manage our DTC business for the long-term, and are confident that our high-quality entertainment and expansion into additional markets worldwide will enable us to further grow our streaming platforms globally.”

ii round-up:

Walt Disney (NYSE:DIS) results missed analyst forecasts in this latest quarter as marketing costs to tempt consumers back to cinemas rose and production costs increased as content making moved up a gear as pandemic restrictions reduced. 

Adjusted earnings per share of 37 US cents for the fourth quarter to the start of October fell short of estimates nearer to 50 cents per share. Growth of 2.1 million Disney Plus subscribers over the quarter also missed estimates nearer to 9 million. 

Disney shares fell by more than 4% in after-hours US trading having about doubled since pandemic induced market lows back in March 2020. Shares for streaming rival Netflix (NASDAQ:NFLX) have risen by around 80% over that time. Shares of Universal theme parks owner Comcast (NASDAQ:CMCSA) are up by almost 60%.

Total Disney streaming subscribers including its ESPN and Hulu subscribers, rose to 179 million from a prior quarter 174 million. Disney plus subscribers now total 118.1 million, with management repeating its expectation for Plus subscribers to grow to between 230 million and 260 million by 2024.

Its parks, entertainment and products business reported a profit of $640 million for the quarter, up from a loss during 2020’s pandemic hit quarter and its second consecutive quarterly profit. All of its global theme parks were open during the quarter and all of its cruise ships back operating.

ii view:

Disney offers investors a one-stop entertainment business. Its brands include Marvel, Pixar Animation and the Star Wars franchise. It 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.  

For investors, the pandemic and ongoing Covid related disruption cannot be overlooked. Overseas tourists travel to its parks may only return slowly. And its dividend has remained halted since the start of the pandemic. On the upside, subscriber numbers for its streaming operations are still ticking upwards and vaccination programmes have allowed its theme parks to reopen. Strength across its North American sports content also remains invaluable given its ability to generate large audiences. In all, and with diversity across this entertainment giant helping to balance out divisional volatility, we believe this well managed company remains worthy of ongoing long-term investor support.  

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 halted

The average rating of stock market analysts:

Buy