The Walt Disney Company (DIS) on Q2 2023 Results - Earnings Call Transcript
Operator: Good day and welcome to The Walt Disney Company’s Second Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alexia Quadrani, Senior Vice President of Investor Relations. Please go ahead. Alexia Quadrani: Good afternoon. It’s my pleasure to welcome everybody to the Walt Disney Company’s second quarter 2023 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www.disney.com/investors. Today’s call is being webcast and a replay and a transcript will also be made available on our website. Joining me for today’s call are Bob Iger, Disney’s Chief Executive Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we will be happy to take some of your questions. So with that, let me turn the call over to Bob to get started. Robert Iger: Thank you Alexia and good afternoon everyone. Allow me to digress for a moment to congratulate Universal for the tremendous success of Super Mario Brothers. It certainly proves people love to be entertained in theatres around the world and it gives us reason to be optimistic about the movie business. Now turning to our results. We're pleased with our accomplishments this quarter, which are reflective of the strategic changes we've been making throughout our businesses. We're also proud of what we continue to deliver for consumers, from movies to television to sports, news and our theme parks. A few recent highlights include Marvel Studios Guardians of the Galaxy Volume 3, which topped the global box office in its opening weekend with $289 million. The first round of the NBA playoffs was the most watched ever across Disney networks, and we've been averaging 5 million viewers throughout the first 22 games up 15% versus the comparable point in last year's playoffs. ABC continued its run as the number one entertainment broadcast network for the fourth consecutive season. And at our domestic parks, we continued to improve the guest experience with our recent pricing changes, and exciting new attractions, including the reimagined Mickey's Toontown at Disneyland, and TRON Lightcycle Run at Walt Disney World. I've been back at the company for almost six months, and in that time we've embarked on a significant transformation to strategically re-align Disney for sustained growth and success. I’m pleased to say that the strategy we detailed last quarter is working. Our new organizational structure is returning authority and accountability to our creative leaders, as well as allowing for a more efficient, coordinated, and streamlined approach to our operations. The cost-cutting initiatives I announced last quarter are well underway, and we're on track to meet or exceed our target of $5.5 billion. We're delivering progress on the number of fronts, including a reduction in streaming operating losses this quarter, and I'm very optimistic about our direct to consumer business longer-term. Combined, our brands, franchises, and robust library are a significant differentiator in the space, and the meteoric subscriber growth we've seen since our launch three years ago only further reinforces that. As I think about our path forward in streaming, we have a number of clear opportunities to further position our DTC business for success. First, as a significant step toward creating a growth business, I'm pleased to announce that we will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+. And while we continue to offer Disney+ Hulu in ESPN plus a standalone options, this is a logical progression of our DTC offerings that will provide greater opportunities for advertisers while giving bundles of subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience. We will begin to roll out this one-app offering by the end of the calendar year, and we look forward to sharing more details in the future. Despite the near-term macro headwinds of the overall marketplace today, the advertising potential of this combined platform is incredibly exciting. And when you drill down into the details, you can see why. Over 40% of our domestic advertising portfolio is addressable, including streaming, which we expect will continue to grow over time. We're also focused on the growth opportunity in programmatic advertising, and we are well positioned to scale as the market improves and audiences continue to grow. We've added more than 1,000 advertisers over the past year, and now have 5,000 advertisers across our streaming platforms, with over a third buying advertising programmatically today. In addition, we plan to launch our ad tier on Disney+ in Europe by the end of this calendar year which will drive both increased inventory and revenue over the long-term. The truth is we have only just begun to scratch the surface of what we can do with advertising on Disney+. And I'm incredibly bullish on our longer term advertising positioning. Meanwhile, the pricing changes we've already implemented have proven successful and we plan to set a higher price for our ad-free tier later this year to better reflect the value of our content offerings. As we look to the future, we will continue optimizing our pricing model to reward loyalty and reduce churn, to increase subscriber revenue for the premium ad-free tier, and drive growth of subscribers who opt for the lower cost ad-supported option. Additionally, I'd like to share a few other key areas where we see opportunities for improvements in our streaming business. First, it's critical we rationalize the volume of content we're creating and what we're spending to produce our content. Second, our legacy platforms enable us to expand our audiences and often augment our potential streaming success while at the same time allowing us to amortize our content costs across multiple windows. We also need to strike the right balance between our local and global programming as well as our platform and program marketing. Finally, we must continue calibrating our investments in specific markets, looking at the total addressable market and ARPU prospects and evaluating the profitability potential. All of these factors combined are why we are confident that we're on the right path for streaming's long-term profitability. The strength of our content, the one-app experience, and the enormous advertising potential that comes with it, rationalizing the volume of the content we make and what we're spending, maximizing windowing opportunities, recalibrating our investments internationally, perfecting our pricing model, and consolidating our global streaming business under the leadership of Disney Entertainment Co-Chairman Alan Bergman and Dana Walden. We're doing the essential work now to position our streaming business for sustained growth and success in the future. Turning to our parks, we see this business as a key growth driver for the company. This past quarter, we've been especially pleased with the performance of our parks internationally. We have several international expansions underway that will allow our parks to continue to build capacity and drive longer-term growth. At Disneyland Paris, our Avengers Campus has been a resounding success in its first year. And we have on-going investment underway there, including a Frozen-inspired land currently in development. Our Zootopia-inspired expansion opens later this year at Shanghai Disney Resort. Arendelle, the World of Frozen expansion, is set to open at Hong Kong Disneyland in the second half of 2023. And Tokyo Disney Resort, which is currently celebrating its 40th anniversary, will be opening the new Frozen Kingdom, Rapunzel's Forest, and Peter Pan's Neverland in the coming year. Regarding our domestic parks, we just announced additional changes coming in 2024 that will improve the experience for guests visiting Walt Disney World, including further expanding access for annual pass holders to visit on certain days without reservations, as well as removing the need for an additional reservation for guests with date-based tickets. This is just another example of how we're continuously listening to our guests and finding ways to improve their experiences. And we have a number of other growth and expansion opportunities at our parks and we're closely evaluating where it makes the most sense to direct future investments. The unyielding popularity of our world-class parks business and our unparalleled content, powered by our brands and franchises, is what sets Disney apart. From the very beginning, 100 years ago, our timeless stories and characters have been the key to our success and hold a special place in the hearts of generations of fans and families. We're leaning into this across every segment of our business, as illustrated with our strong summer slate of theatrical releases, including Disney's The Little Mermaid, Pixar's Elemental, and Lucasfilm's Indiana Jones and The Dial of Destiny. As we've been looking at the structure of the company these past several months, what's become clear is that there is an enormous opportunity to harness our full potential by increasing alignment and coordination in marketing across our businesses. That's why I named Asad Ayaz our first ever Chief Brand Officer in addition to his role as President of Marketing for our studios. For years, our businesses have been incredibly successful in marketing our content, experiences, and products. And now with greater integration of our touch points with consumers, especially streaming, we're able to be more efficient and more successful in reaching the right audiences with the right offerings from across our businesses. Disney means so much to so many people around the world. That's a privilege we take seriously. And I know I speak for our terrific Chairman, Alan, Dana, Jimmy and Josh, when I say that our goal is to continue finding innovative new ways that allow guests and audiences to have even deeper connections with us. And that's why I'm so thrilled to be taking this more proactive approach to our brand and marketing work. With that, I will turn things over to Christine. Christine McCarthy: Thanks Bob and good afternoon everyone. Excluding certain items, fiscal second quarter, diluted earnings per share, or $0.93, a decrease of $0.15 versus the prior year. As improvements that deep up and direct to consumer, we're more than offset by declines at our linear network's business. As Bob mentioned, we are making excellent progress on our cost-cutting initiatives and are on track to meet or exceed the efficiency targets we outlined last quarter. During Q2, we took a restructuring charge over approximately $150 million, primarily related to severance. While we are continuing to refine our estimates, we currently expect to record additional severance charges of approximately $180 million over the remainder of this fiscal year with the bulk of that additional charge expected in the third quarter. We are in the process of reviewing the content on our DTC services to align with the strategic changes in our approach to content curation that you've heard Bob discuss. As a result, we will be removing certain content from our streaming platforms and currently expect to take an impairment charge of approximately $1.5 million to $1.8 billion. The charge, which will not be recorded in our segment results, will primarily be recognized in the third quarter as we complete our review and remove the content. And going forward, we intend to produce lower volumes of content in alignment with this strategic shift. Now, to dive into our quarterly results by segment, starting with our Media and Entertainment Distribution Business, a year-over-year decline in operating income was driven primarily by a $1 billion decrease at linear networks. DTC results improved versus a prior year in content sales licensing and other operating results in the second quarter declined modestly. At linear networks, results were consistent with guidance given last quarter, driven by decreases of approximately $800 million at our domestic linear networks and $160 million at our international linear networks. The domestic results decreased at both cable and broadcasting. At cable, this is largely due to higher sports programming and production costs, which were driven by the timing of costs for the college football playoff and the NFL we discussed last quarter. In addition to NBA contractual rate increases and higher sports production costs. Lower broadcasting results reflected decreases in advertising revenue across the ABC network and our own television stations. Second quarter domestic linear networks affiliate revenue decreased by 2% from the prior year, driven by a 6 point decline from fewer subscribers, partially offset by 3 points of growth from contractual rating increases. Rate growth was adversely impacted by 1 percentage point from the timing of revenue recognition from certain non-owned TV stations. Second quarter, domestic linear advertising revenue declined 10% year-over-year, although ESPN ad revenue is up 2% or flat when adjusted for certain non-comparable items, including CFP timing. The sports advertising marketplace is currently stable, with quarter-to-date ESPN domestic linear cash ads sales pacing up. However, the overall entertainment advertising marketplace has been challenging. While the weakness has moderated somewhat, we anticipate that some softness may continue into the back half of the fiscal year. But as Bob mentioned, we are optimistic about our ability to continue to be a leader in advertising throughout the business cycle, particularly as it relates to our capabilities in addressable and programmatic. And we look forward to sharing more details at our upfront presentation next week. International channels operating income decreased versus the prior year, driven by lower advertising revenue, partially offset by lower programming costs. Moving on to the direct-to-consumer, operating losses improved sequentially by approximately $400 million versus Q1. During the second quarter, Disney+ core subscribers grew modestly, with over 600,000 net additions. Core international subs, increased by close to $1 million. While domestic subs declined slightly in the quarter from continued impacts from the price increase, domestic ARPU increased sequentially by 20%, reflecting strong subscription revenue growth. And while the softness we saw in Q2 domestic Disney+ net ads may linger into Q3, we do expect core sub growth to rebound in Q4. At ESPN Plus and Hulu, subscribers increased slightly over the prior quarter. ARPU at Hulu was impacted by lower per-subscriber advertising revenue, in line with the comments we made last quarter regarding near-term softness in the addressable advertising space. DTC expenses, including programming and production costs, and SG&A, declined in the second quarter versus Q1. Our direct-to-consumer operating results in Q2 outperformed our guidance by about $200 million, due in part to timing shifts of marketing expenses driven by recent slate changes at Disney+ and Hulu. The shift of some of those costs into the third quarter will contribute to Q3 DTC operating losses widening by approximately $100 million versus Q2. As we have noted before, the path will not be linear, as the strategic changes and improvements we're executing on take time to deliver, but we remain confident in our long-term trajectory, with continued opportunities to further improve results given our content duration strategy, planned price increases, expanding our relationships with our advertisers, and our on-going disciplined approach to costs. At Content Sales Licensing and Other, we generated a $50 million loss in the quarter, a bit shy of our prior guidance that results would be roughly break-even. Lower results in the second quarter versus the prior year were due to a decrease in TVS mod distribution results, partially offset by improved theatrical distribution results due to the continued success of Avatar, The Way of Water. In the fiscal third quarter, we anticipate this business's operating results will decline by $150 million to $200 million versus the prior year, driven primarily by timing of the marketing of theatrical releases, with key titles, Elemental, In Indiana Jones, and The Dial of Destiny, not premiering until very late in the quarter. Moving on to Parks, Experiences, and Products, operating income increased by over 20% versus the prior year to $2.2 billion, with increases at both international and domestic parks and experiences partially offset by lower merchandise licensing results at consumer products. Our international parks were a bright spot this quarter, with strong year-over-year operating income growth driven by higher attendance and improved financial results at Shanghai Disney Resort, Disneyland Paris, and Hong Kong Disneyland Resort. At domestic parks and experiences, operating income increased 10% versus the prior year, driven primarily by the continued post-pandemic recovery of our cruise line, partially offset by a comparison to a gain from a real estate sale in the prior year. Q2 domestic parks operating income came in slightly below the prior year, but was still up over 50% versus 2019. Results generally reflects the cost pressures we cited in last quarter's earnings call, including wage increases, costs associated with new guest offerings, and other inflationary cost impacts. Domestic year-over-year increases in attendance and per capita spending were 7% and 2%, respectively. Per-cap growth was more moderate this quarter, as we are comparing against the first full quarter of offering GeniePlus and Lightning Lane at both parks in the prior year. Domestic parks and experiences operating margins were comparable to the prior year, once adjusted for the impact of the prior year's real estate sale. Please keep in mind that in the back half of this fiscal year, there will be an unfavorable comparison against the prior year's incredibly successful 50th anniversary celebration at Walt Disney World. We typically see some moderation in demand as we lapse these types of events, and third quarter-to-date performance has been in line with those historical trends. This comparison, coupled with inflationary cost pressures, including from a new union agreement, is expected to drive a modest adverse impact to domestic parks and experiences operating margins in the third quarter compared to the prior year. However, we expect the contribution from continued strong performance at our international parks in Q3 to result in DPEP segment-level operating margins that are slightly higher than the prior year. DPEP will continue to be a growth business for our company, and we will manage all of these factors in line with our enduring focus on our guests. Before we conclude, I would like to note a couple of items related to our expectations for the total company this year. For fiscal 2023, cash content spend company-wide is expected to remain roughly comparable to last year, excluding any potential impacts from the writer strike, and we expect that fiscal 2023 capital expenditures will total approximately $5.6 billion. This is lower than our prior guide of $6 billion, largely due to timing of projects at DPEP as well as lower technology spend at DMED. We still expect fiscal 2023 revenue and operating income to grow in the high single-digit percentage range. There are still many moving pieces, including macroeconomic factors, the state of the global advertising market, and content timing shifts, which could impact our plans and expectations for the back half of this year. But as Bob mentioned earlier, we are incredibly optimistic about the long-term value creation opportunities that the changes we are currently executing on can generate for our company, and we look forward to keeping you updated on our progress. And with that, I will turn the call over to Alexia for Q&A. Alexia Quadrani: Thanks, Christine. As we transition to Q&A, we ask you to please try to limit yourselves to one question in order to help us get as many answers as possible today. And with that, operator, we're ready for the first question. Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ben Swinburne of Morgan Stanley. Please go ahead. Operator: The next question comes from Phil Cusick of JPMorgan. Please go ahead. Operator: The next question comes from Michael Nathanson of MoffettNathanson. Please go ahead. Operator: The next question comes from Jessica Reif Ehrlich of BofA Securities. Please go ahead. Operator: The next question comes from Kannan Venkateshwar of Barclays. Please go ahead. Operator: The next question comes from Michael Morris of Guggenheim. Please go ahead. Operator: The last question comes from Doug Mitchelson of Credit Suisse. Please go ahead. Operator: Alexia Quadrani: Okay, thanks for the question. I want to thank everyone for joining us today. Note that a reconciliation of non-GAAP measures that were referred to on the fiscal to equivalent GAAP measures can sound on investor relations website. Let me also remind you that certain statements on this call including financial estimates are statements that are planned, guidance, or expectations, or other statements that are not historical nature may constitute forward-looking statements on the security laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them, we do not undertake any obligations to update these statements. Forward-looking statements are subject to a number of risk and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors including economic or industry conditions and execution risks, including in-connection with our organizational structure and operating changes, cost savings and DTC business plans relating to content, subscriber, and revenue growth and profitability. For more information about the key risk factors please refer to our investor relations website, the press release issue today, and the risk and uncertainties described in our form 10-K, Form10-Q and other findings for the Security and Exchange Commission. We want to thank you for joining us today and we wish everyone a good rest of the day. Operator: Conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
The Walt Disney Company (NYSE: DIS) Faces Competitive Challenges and Opportunities
- Analysts have revised Disney's stock price targets downward due to challenges in the streaming segment and increased competition.
- Disney's recent earnings report exceeded expectations, with significant contributions from theme parks and the successful release of "Deadpool & Wolverine."
- Investors are closely monitoring Disney's performance in streaming services and theme parks, alongside macroeconomic factors that could impact consumer spending.
The Walt Disney Company (NYSE: DIS) is a global entertainment giant known for its iconic characters, theme parks, and media networks. It operates in various segments, including media networks, parks, experiences, and products, studio entertainment, and direct-to-consumer & international. Disney faces competition from companies like Netflix, Comcast, and Warner Bros. Discovery in the streaming and entertainment sectors.
Over the past year, analysts have revised their price targets for Disney's stock downward, reflecting a more cautious outlook. The average price target decreased from $120.63 a year ago to $95 last month. This shift may be influenced by challenges in Disney's streaming segment, where increased competition and rising content costs have pressured margins, as highlighted by recent news.
Despite these challenges, Disney's recent earnings report exceeded Wall Street's expectations, driven by strong ticket sales from the summer Marvel film "Deadpool & Wolverine." The company's revenues for the fourth quarter rose by 6% to $22.6 billion, and for the full fiscal year, revenues increased by 3% to $91.4 billion. Analyst Michael Nathanson from MoffettNathanson has set a price target of $150 for Disney, indicating a positive outlook.
Disney's theme parks are recovering post-pandemic, but the pace and sustainability of this recovery remain uncertain. Laura Martin from Needham emphasized on CNBC that Disney's parks could play a crucial role in its long-term success, despite current revenue declines. Investors are keen to see how Disney's various segments, including its parks and streaming services, perform in the upcoming earnings report.
Macroeconomic factors, such as inflation and interest rates, can impact consumer spending on entertainment and travel, affecting Disney's business segments. As Disney prepares to announce its fiscal fourth-quarter earnings, analysts anticipate earnings per share of $1.10 and revenues of $22.45 billion. Investors will be watching closely for growth in Disney's streaming services and any strategic announcements that could influence future price targets.
Raymond James Downgrades Disney to Market Perform, Highlights Challenges in Parks Division
Disney (NYSE:DIS) shares fell more than 1% intra-day today after Raymond James downgraded the company to Market Perform from Outperform, citing several challenges, particularly within the Parks division, that are likely to keep the stock in a range-bound pattern for the next 12 to 18 months.
Despite a recent 12% rebound in Disney’s stock, analysts are cautious about its near-term potential, noting that the company's Parks division faces slowing attendance and pricing power. Following a post-pandemic surge, demand has started to soften as consumers adjust to price increases implemented over the past four years.
Disney is also grappling with heightened competition, particularly with the upcoming launch of Universal's Epic Universe in Orlando next summer, which is expected to be a significant challenge in one of Disney's key markets.
Raymond James pointed to three specific issues impacting Disney’s parks: a diversion of attendance to the Paris Olympics, a typhoon temporarily closing Shanghai Disney, and a recent hurricane affecting Walt Disney World in Orlando. These disruptions have contributed to a more cautious outlook ahead of Disney’s fiscal fourth-quarter report.
The firm also acknowledged Disney’s strong position in the shift from linear TV to streaming, thanks to its ownership of two major streaming platforms and a leading intellectual property portfolio. However, they expressed concerns over the high costs involved in launching ESPN’s streaming service.
Additionally, while Disney's upcoming three new cruise ships, set to launch by the end of 2025, are expected to boost growth, Raymond James noted that the capital expenditures required will put pressure on the company’s free cash flow in the near term.
Seaport Global Upgrades Walt Disney to Buy, Sets Price Target at $108 Amid Improved Macroeconomic Outlook
Seaport Global Securities analysts upgraded Walt Disney (NYSE:DIS) to Buy from Neutral, setting a price target of $108 on the stock.
The analysts acknowledged a shift in their outlook on Disney, citing improved macroeconomic conditions and better prospects for the company. They previously downgraded Disney shares over concerns about flat attendance at the Parks division and declining operating income. Additionally, increased spending on the company's direct-to-consumer (DTC) platform had led them to lower profitability estimates for fiscal year 2025.
However, the analysts now see a brighter future for Disney, driven by a more favorable macroeconomic environment. They believe market sentiment is more accepting of the current state of Disney’s Parks demand and DTC business, which is showing signs of emerging profitability.
Although Parks data remains somewhat weak, the analysts view it as a temporary issue, while DTC's recent price hikes and paid-sharing initiatives could help drive growth in both average revenue per user (ARPU) and subscriber numbers.
Walt Disney Co. (NYSE: DIS) Faces Financial Complexities Despite Streaming Profit
- Walt Disney Co. (NYSE:DIS) has achieved profitability in its streaming service, marking a significant milestone.
- The company's stock was downgraded to Neutral from Buy by Seaport Global, reflecting skepticism about Disney's short-term financial prospects.
- Despite a substantial increase in free cash flow, Disney's financial performance shows declines in key metrics such as revenue growth and net income growth.
Walt Disney Co. (NYSE:DIS) has recently reached a significant achievement as its streaming service begins to generate profit, marking a pivotal moment for the company. Despite this progress, a report from 24/7 Wall St. Insights has cast a shadow over this success by labeling Disney as "still an awful stock." This stark assessment underscores the hurdles Disney faces in its bid to reshape investor perceptions and affirm the value of its stock. The entertainment behemoth's journey to profitability in its streaming segment is a key development, yet it seems to struggle in fully swaying market sentiment in its favor.
The recent downgrade of Disney's stock by Seaport Global to Neutral from Buy, as reported by TheFly, adds another layer of complexity to Disney's financial narrative. This adjustment, announced on Thursday, August 8, 2024, with the stock priced at $85.96, reflects growing skepticism among analysts about Disney's immediate financial prospects. This downgrade is particularly noteworthy as it suggests a recalibration of expectations, possibly due to the challenges highlighted in the financial performance metrics of the company.
Disney's financial health, as indicated by its recent performance, presents a mixed picture. The company has seen a decline in revenue growth by approximately 6.23% in the latest quarter, alongside a slight decrease in gross profit growth by about 0.64%. More concerning is the dramatic drop in net income growth by 101.05%, signaling a significant hit to profitability. These figures, coupled with a decrease in operating income growth by roughly 2.37% and a fall in asset growth by about 1.35%, paint a challenging financial landscape for Disney.
However, not all indicators are negative. Disney has reported a substantial increase in free cash flow growth by 171.67% and an improvement in operating cash flow growth by approximately 67.78%. These positive developments in cash flow metrics suggest that, despite the downturns in other areas, Disney is generating more cash from its operations, which is crucial for sustaining investments and potentially improving its financial standing in the long run. Yet, the decline in book value per share growth by about 1.57% and a decrease in debt growth by roughly 2.92% further complicate the financial outlook, indicating a nuanced and multifaceted financial health that investors need to consider.
In summary, while Disney's streaming service turning profitable is a noteworthy achievement, the broader financial challenges and the recent downgrade by Seaport Global underscore the complexities in Disney's path to convincing investors of its stock's value. The mixed financial performance, characterized by significant growth in cash flow but declines in other key metrics, highlights the intricate balance Disney must navigate to enhance its stock appeal and secure investor confidence in its long-term prospects.
Disney Beats Q3 Earnings Expectations but Warns of Softening Demand, Shares Drop 4%
Walt Disney (NYSE:DIS) reported third-quarter earnings that exceeded analyst predictions, fueled by robust performance in its Entertainment segment. However, shares dropped over 4% intra-day today as the company cautioned about weakening demand in its Experiences segment.
Adding to the pressure on Disney's stock, it was reported that Disney and Comcast remain in a dispute over the valuation of Hulu. Disney indicated it might need to pay up to $5 billion more to acquire NBCUniversal’s 33% stake in the streaming service.
Disney reported adjusted earnings per share of $1.39, surpassing the Street estimate of $1.20. Revenue for the quarter was $23.2 billion, slightly above the consensus estimate of $23.08 billion and representing a 4% year-over-year increase.
The Entertainment segment was particularly strong, with operating income nearly tripling year-over-year, driven by better results in Direct-to Consumer and Content Sales/Licensing. Significantly, Disney achieved profitability across its combined streaming businesses for the first time, one quarter ahead of its previous guidance.
Despite the overall positive results, Disney warned of softening consumer demand in its Experiences segment, which may affect the upcoming quarters. The company expects Q4 operating income in the Experiences segment to decline by mid-single digits compared to the previous year.
Disney has now adjusted its full-year EPS growth target to 30%, citing strong consolidated financial performance in the third quarter.
Goldman Sachs Sets Bullish Price Target for Disney
- Michael Ng from Goldman Sachs has set a bullish price target of $125 for Disney, indicating a potential upside of approximately 22.57%.
- Despite facing challenges in its streaming and linear TV segments, Disney's theme park division has shown robust performance post-COVID-19.
- Disney's stock has begun to recover, fueled by better-than-expected Q2 fiscal year 2024 results and a surprising operating profit in its streaming operations.
On June 24, 2024, Michael Ng from Goldman Sachs set a bullish price target of $125 for Disney (NYSE:DIS), indicating a potential upside of approximately 22.57% from its price at the time of the announcement, which was $101.98. This optimistic outlook was shared alongside the initiation of coverage on Disney, as detailed in a report available on TheFly. The report, titled "Disney initiated with a Buy at Goldman Sachs," highlights the reasons behind Goldman Sachs' positive stance on the company. Disney, a global entertainment giant, has been navigating through a series of challenges and opportunities across its diverse business segments, including its streaming services, theme parks, and traditional linear TV operations.
Disney's stock, with the ticker symbol DIS, is currently trading at approximately $102 per share, which is nearly half of its peak price of around $202 observed on March 8, 2021. This significant drop in stock price has been attributed to a variety of factors impacting the company. Among these, Disney's streaming business has faced challenges such as slowing subscriber growth and increased competition from other streaming services. Additionally, the company's linear TV segment has experienced a downturn, marked by reduced advertising income and a fall in affiliate revenues within the domestic market. Despite these challenges, Disney's theme park division has shown robust performance since reopening post-COVID-19, although the near-term outlook presents a mix of higher expected costs and a potential normalization in visitor numbers.
However, there has been a positive development as Disney's stock saw a recovery from its low of about $80 in October 2023. This rebound was fueled by better-than-expected results for the second quarter of the fiscal year 2024 and a surprising operating profit reported in its streaming operations during the same period. Over a broader timeline, Disney's stock has experienced a sharp decline of 45% from its early January 2021 levels of $180 to around $100 currently. This overview suggests that while Disney faces several challenges across its various business segments, there are also signs of recovery and potential growth, particularly in its streaming business as it approaches profitability.
The Walt Disney Company (DIS), listed on the NYSE, is currently trading at $101.98, experiencing a slight decrease of $0.29, which translates to a change of approximately -0.28%. Today, the stock fluctuated between a low of $101.91 and a high of $103.08. Over the past year, Disney's shares have seen a high of $123.74 and a low of $78.73. The company's market capitalization stands at about $185.91 billion, with a trading volume of 7,349,654 shares. This financial snapshot, combined with the broader context of Disney's operational challenges and successes, underscores the rationale behind Goldman Sachs' bullish outlook on the company. Despite the hurdles, Disney's strategic moves, especially in its streaming and theme park divisions, hint at a resilient comeback, aligning with Goldman Sachs' optimistic price target.
Disney Shares Drop 9% Despite Strong Q2 Results
Walt Disney (NYSE:DIS) announced fiscal second-quarter adjusted earnings per share of $1.21, surpassing Wall Street predictions. However, shares dropped more than 9% yesterday. Following a tough proxy battle earlier this year, Disney's executive team is focused on moving forward, with CEO Bob Iger at the helm of the company's turnaround efforts. Iger highlighted the success of these efforts, particularly noting a surprising operating profit of $47 million from its direct-to-consumer entertainment streaming service, which includes platforms like Disney+ and Hulu, alongside its vital parks business.
Disney raised its full-year earnings per share growth forecast to 25%, up from the previously projected 20%. While the direct-to-consumer segment may see softer results this quarter, Iger expects Disney's overall streaming business to achieve profitability by the fourth quarter, a key component of his strategy to improve the company's stock performance.
For this quarter, Disney reported a jump in group-wide revenues to $22.08 billion, up from $21.8 billion the previous year, and slightly below the consensus estimate of $22.1 billion.
