Interactive Investor

ii view: Walt Disney benefits from diversity in action

13th November 2020 11:24

Keith Bowman from interactive investor

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Disruption to theme parks and films is being softened by streaming success at Walt Disney.

Fourth-quarter results to 3 October 2020

  • Revenue down 23% to $14.71 billion (£11.18 billion)
  • Net income loss of $710 million, down from a profit of $777 million 
  • Adjusted Earnings Per Share (EPS) fell to a loss of $0.20, from $1.07
  • Dividend payment suspended

Chief executive Bob Chapek says:

“Even with the disruption caused by Covid-19, we’ve been able to effectively manage our businesses while also taking bold, deliberate steps to position our company for greater long-term growth. The real bright spot has been our direct-to-consumer business, which is key to the future of our company, and on this anniversary of the launch of Disney+ we’re pleased to report that, as of the end of the fourth quarter, the service had more than 73 million paid subscribers – far surpassing our expectations in just its first year.”

ii round-up:

Entertainment mammoth Walt Disney (NYSE:DIS) reported better-than-feared fourth-quarter results, as growth for its streaming services helped counterbalance pandemic closures and disruption for both its theme park and film studios businesses. 

Revenue of $14.71 billion exceeded Wall Street estimates nearer to $14 billion, while a loss per share of $0.20 bettered forecasts down at over $0.65. 

Disney shares rose by around 5% in post results US trading, leaving them down around 6% year-to-date. Shares for rival streamers Netflix (NASDAQ:NFLX) and Prime video owner Amazon (NASDAQ:AMZN) are up 50% and 68% respectively in 2020.

Paid subscribers to its streaming Disney Plus service, launched just a year ago, rose to over 73 million. Already exceeding management’s target of between 60 million and 90 million subscribers by the end of its 2024 financial year. 

Overall streaming subscribers within its Direct-To-Consumer (DTC) division, and including its other Hulu and ESPN services, now total 120 million. Netflix global customers number around 195 million. Revenues for the DTC division jumped by 41% from this time last year to $4.85 billion as consumers continued to utilise stay-at-home streaming services under the global pandemic. 

Revenues for its Disney's Parks, Experiences and Products division fell by 61% year-over-year to $2.58 billion. Some theme parks such as Florida are now back open following Covid closures, although with limited capacity, while others such as those in California and Paris are currently closed. 

No major film releases, given pandemic disruption, and the tough comparatives of both the Lion King and Toy Story fours being released this time last year, left sales for its Studio Entertainments division down 52% to $1.6 billion. 

No second-half dividend payment was declared given both ongoing Covid disruption and continued investment into its streaming subscriber led DTC division. 

ii view:

Walt Disney offers investors a one-stop entertainment business. Diversity in both business type and geographical location is significant. North America still generates the vast majority of revenues at over just over 70%, with Europe and Asia each at around 11% and Latin America accounting for the balance at just under 5%. Group brands include Pixar Animation, Marvel and the Star Wars franchise.

For investors, the Covid clouded outlook cannot be ignored. The rollout of any vaccine is likely to take time. Overseas tourist travel to its theme parks may eventually return, but slowly. However, there's hope that the worst of the pandemic is now over for Disney. Its Disney Plus service, on top of early launch success, has been clearly aided by coronavirus requirements. In all, Disney’s long and vast experience in the entertainment world leave it as one to own long-term for many 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 halted

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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