The Walt Disney Company (DIS) on Q2 2024 Results - Earnings Call Transcript
Operator: Good day, and welcome to The Walt Disney Company's Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Alexia Quadrani, Executive Vice President of Investor Relations. Please go ahead. Alexia Quadrani: Good morning. It's my pleasure to welcome everybody to The Walt Disney Company's second quarter 2024 earnings call. Our press release was issued earlier this morning and is available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript, as well as the second-quarter earnings presentation will all be made available on our website after the call. Joining me for today's call are Bob Iger, Disney's Chief Executive Officer, and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Hugh, we will be happy to take some of your questions. So with that, let me turn the call over to Bob to get started. Bob Iger: Thank you, Alexia, and good morning, everyone. Our strong performance in Q2 demonstrates we are delivering on our strategic priorities while building for the future. Overall, this was another impressive quarter for us, with adjusted earnings per share up 30% compared to prior year. And I'm pleased to say, this outperformance raises our full-year adjusted EPS growth target to 25%. Our results were driven in large part by our Experiences segment and our streaming business, which achieved an important milestone with the Entertainment portion of the streaming business achieving profitability in the quarter. This is a testament to the turnaround we set in motion last year and the outstanding leadership of Disney Entertainment Co-Chairmen Alan Bergman and Dana Walden. It is particularly noteworthy when you consider we reported peak losses only 18 months ago. We also remain on track to reach profitability in our combined streaming businesses in Q4. We've said all along, our path to profitability will not be linear. And while we are anticipating a softer third quarter, due in large part to the seasonality of our India sports offerings, we fully expect streaming to be a growth driver for the Company in the future and we have prioritized the steps necessary to achieve this. In March, we successfully launched Hulu on Disney+, bringing extensive general entertainment content to the platform for bundle subscribers. And we're encouraged by the early results. And by the end of this calendar year, we will be adding an ESPN tile to Disney+, giving all US subscribers access to select live games and studio programming within the Disney+ app. We see this as a first step to bringing ESPN to Disney+ viewers, as we ready the launch of our enhanced standalone ESPN streaming service in the fall of 2025. The key to our success in streaming and what consistently brings consumers back for more is the array of exceptional content we produce that captivates audiences of all ages and backgrounds. Looking at our film studios, we have a number of highly-anticipated theatrical releases arriving over the next few months, including Kingdom of the Planet of the Apes, which opens this Friday, as well as Pixar's Inside Out 2, Marvel's Deadpool & Wolverine and 20th Century Studios’ Alien: Romulus, which are all slated for this summer. Later this year, we're looking forward to Moana 2 and Mufasa: The Lion King. And in 2025, our slate remains just as robust with Captain America: Brave New World, Fantastic Four, Elio, Zootopia 2 and Avatar 3. Our series also continue to resonate with audiences and critics alike. FX's Shogun has proven to be a global hit with success on both linear and streaming. It's tracking as FX's most-watched show ever on our streaming platforms and it's driving the second largest number of sign-ups to our streaming services since 2022, behind only Black Panther: Wakanda Forever. This is a great example of how we are successfully reaching wider audiences with our combined linear and streaming ecosystem. In Q2, series that aired on linear networks accounted for 17 of the top 20 most viewed series on our streaming platforms, with almost 3 billion hours of consumption. Our linear channels are deeply embedded in our direct-to-consumer strategy, as they continue to deliver high-quality content that reaches demographics not captured on streaming alone, allowing us to broaden our audiences and leverage our unmatched content engine across an expansive base. Turning to ESPN, sports continues to stand out when it comes to convening large audiences, with recent big ratings wins across a variety of sports. ESPN had a fantastic April in terms of total day viewership, the highest April since 2012. For Primetime viewership, it was ESPN's highest April on record. The NCAA Women's Final Four in Cleveland was the most viewed on record, and the championship between Iowa and South Carolina was ESPN's most viewed college basketball game ever, men's or women's. We also saw record-breaking ratings for the WNBA draft. Monday Night Football had its most-watched season since 2000 and the NFL Postseason also broke viewership records. The divisional playoff game between the Houston Texans and Baltimore Ravens was ESPN's most-watched NFL game ever, with 32.4 million viewers. Looking at our Experiences business, which remained an impressive financial driver in the quarter, we are focused on turbocharging growth with a number of long-term strategic investments. That includes our Disneyland Forward initiative, the first step in our expansion plans at Disneyland Resort, which received unanimous preliminary approval by the Anaheim City Council last month. This was a significant milestone, and the final vote is expected to take place this evening. We're incredibly excited for the many potential new stories our guests could experience at Walt's original theme park, including the much-anticipated opportunity to bring Avatar to Disneyland. When you consider all of our businesses as a whole, from Entertainment to Sports to Experiences, it's clear that no one has what Disney has. The turnaround and growth initiatives we set in motion last year have continued to yield positive results, and we are executing against our ambitious strategic priorities with both speed and determination. To walk you through more of our results from the quarter, I will now turn things over to Hugh. Hugh Johnston: Thanks, Bob. Diluted earnings per share, excluding certain items, for the second fiscal quarter were $1.21 and reflected the second quarter in a row of strong double-digit percentage year-over-year earnings growth. We also met or exceeded all of our financial guidance for the quarter. And as Bob mentioned, we are now targeting adjusted EPS growth of 25% for the full-year. At our Entertainment segment, second-quarter operating income increased by over 70% versus prior year, driven by direct-to-consumer. Entertainment DTC revenue increased 2% sequentially and 13% year-over-year, and generated operating income of $47 million. These results exceeded our guidance, primarily due to expense savings. Core Disney+ subscribers increased by 6.3 million in the quarter, reflecting nearly 8 million additions domestically, driven by charter entitlements and a slight loss internationally from the impacts of wholesale deal changes and price increases. Disney+ core ARPU increased sequentially by 6% or $0.44, reflecting price increases for the domestic premium tier as well as international ARPU growth, partially offset by lower ad-supported ARPU domestically, driven by dilution from charter entitlements. And the recent Charter deal also drove Disney+ ad tier subscriber growth in the quarter. We ended Q2 with 22.5 million ad tier subscribers globally. We are pleased with the progress we're making in streaming although, as we said before, the path to long-term profitability is not a linear one. On that note, we are forecasting a loss for Entertainment DTC in the third quarter, the vast majority of which is due to Disney+ Hotstar's ICC cricket rights. We also do not expect to see core subscriber growth at Disney+ in the third quarter, but anticipate sub-growth will return in Q4. As Bob mentioned, we continue to expect our combined streaming businesses to be profitable in the fourth quarter and expect further improvements in profitability in fiscal 2025. At Entertainment Linear Networks, a decrease in operating income versus the prior year was primarily driven by lower affiliate and advertising revenue domestically and lower affiliate revenue internationally. And at Content Sales/Licensing and Other, lower Q2 results versus the prior year reflect the absence of significant theatrical releases in the quarter. For Q3, we expect this business to generate modestly positive operating income, an improvement over the prior quarter and prior year. Moving to Sports, second quarter operating income decreased slightly versus the prior year, driven primarily by a decrease at ESPN, offset by improved results at Star India Sports. As expected, at ESPN, lower results at the domestic business reflect higher programming and production costs from the timing of an additional college football playoff game in the quarter versus the prior year, which were only partially offset by higher ad revenue. Domestic affiliate revenue also decreased in the quarter. ESPN domestic ad sales increased by more than 20% versus the prior year or high single digits when adjusted for the college football playoff timing shift of an additional game as well as a new NFL divisional playoff game in Q2 of this year. Q3 to date, we are seeing healthy demand driven by the NBA playoffs and domestic ESPN cash ad sales are pacing up. At Star, higher results in Q2 versus the prior year include the impact of a decrease in programming and production costs, attributable to the non-renewal of BCCI cricket rights. Looking ahead, note that we are currently expecting to incur linear ICC rights expense at Star India in Q3. At Experiences, second-quarter revenue grew 10%, operating income grew 12% and segment margins expanded by 60 basis points versus the prior year. Parks and Experiences OI increased by 13% year-over-year and Consumer Products OI increased by 7%. Strong international Parks growth was driven by Hong Kong Disneyland Resort, while Walt Disney World and the Cruise business both contributed to domestic growth. At Disneyland, despite growing attendance and per-capita spend, results declined year-over-year due to cost inflation, including from higher labor expenses. We continue to expect robust operating income growth at Experiences for the full year. However, third-quarter OI is expected to come in roughly comparable to the prior year. Several non-comparable or timing-related items are expected to adversely impact Q3 results, including timing of media and tech expenses, non-comparable items in the prior year at Consumer Products and the timing of Easter. Beyond these comparability related headwinds, the third quarter's results will be impacted by three additional factors, higher wage expenses, pre-opening expenses related to the Disney treasure and adventure cruise ships, as well as Disney Cruise Line's New Island, Lookout Cay, and some normalization of post-COVID demand. As it relates to demand, while consumers continue to travel in record numbers and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post-COVID travel. While pressures from wages, reopening costs and demand impacts are expected to persist in Q4, we do expect year-over-year Experiences operating income growth to rebound significantly in the fourth quarter due to fewer comparability or timing factors. On an Enterprise level, we continue to make good progress on our cost-efficiency initiatives and remain positioned to exceed our $7.5 billion annualized target. We still expect to generate over $8 billion in free cash flow this fiscal year and the shareholder return goals we've previously spoken about are also still very much on track. We repurchased $1 billion of stock in the second quarter. We continue to position the company for long-term growth and profitability, and are making tangible progress on generating compounding earnings and free-cash flow growth, which will enable us to continue returning capital to shareholders. I'll now hand the call back to Alexia for Q&A. Alexia Quadrani: Thank you. As we transition to the Q&A, we ask that you please try to limit yourself to one question in order to help us get to as many analysts as possible today. And with that, operator, we're ready for the first question. Operator: [Operator Instructions] Today's first question comes from Steven Cahall with Wells Fargo. Please go ahead. Steven Cahall: Thank you. So, first, thanks for that detail on Parks and Experiences and what you expect in the third quarter. I just wanted to dig into some of those demand comments a little more. So, as you start to lap some of the post-COVID rebound, what's your expectation for attendance maybe at the domestic level and at the global level? As you start to exit fiscal '24 and into '25, do you think things will continue to be stable or are any of those softening trends sufficient that you expect attendance to have any kind of year-on-year decline? And then on the DTC side of things, Hugh, I think you've talked about a double-digit operating margin as the aspiration. I was wondering if you could just give us any timing as to when we can expect those types of margins? And maybe you could speak to the underlying performance of DTC excluding Hotstar, since I think you're going to be deconsolidating that next year. Thank you. Bob Iger: Great. Good morning, Steve. Happy to weigh in on both of those. First, in terms of attendance, look, what we're basically communicating is relative to the post-COVID highs, things are tending to normalize. The Parks business did 10% growth in the quarter. And obviously, that's an extremely high revenue number. That said, we still see in -- the bookings that we look ahead towards indicate healthy growth in the business. So, we still certainly feel-good about the opportunities for continued strong growth. In addition to that, just to comment a bit more on the timing, as I mentioned on the intro, we do have some one-time expenses occurring in Q3. If we were to back out one-timers both for Q3 and Q4, we expect OI for the quarter to be in the mid-to-high single-digit range for Q3 and to be double-digit for Q4. So, I certainly feel like the Parks business is still doing very, very well. Obviously, we've got the best in the business in terms of product. And people still have a strong desire to basically go on vacation and come to see us. With regard to DTC margins, a couple of comments on that. First, our goal with this business is to make it a great growth business with healthy margins. We want both, not one versus the other. We've got a lot of levers that give us strong reasons to believe that there's good growth in front of us, whether it's the great programming we have, whether it's higher engagement through bundling and we've got examples of that coming in Latin America as well as adding the sports tile, the ESPN tile to our Disney+ offering. And obviously, we've already added Hulu. In addition to that, password sharing remains an opportunity we're just getting started on, reducing distribution costs for an opportunity and leveraging technology for direct-to-consumer marketing as well as recommendation engines, which help both on the revenue and cost side. And ultimately, we'll get to building out the international business even more strongly. So, from the perspective of building the business, it will be a combination of both managing costs more tightly, but also growth which will allow us to leverage the cost structure we have right now. And we feel very, very positively about that. Specific timing, I'm not going to comment on for margins. I don't like to get ahead of the next year until we get to the next year. And in addition to that, from a competitive perspective, I'd rather not give my competitors the pathway on exactly how we're -- how and when we're going to achieve the margin goals we're looking to achieve. But overall, business is in great shape and we feel good about the growth prospects. Steven Cahall: Thank you. Alexia Quadrani: Operator, next question, please. Operator: Thank you. And our next question comes from Ben Swinburne with Morgan Stanley. Please go ahead. Ben Swinburne: Thanks, good morning. Two questions. Bob, on ESPN, there's obviously a lot of focus on the NBA. You've got a lot going on in terms of new product launches, rights packages coming up. You sound as bullish as ever on sort of pivoting this business. Can you just talk about the next kind of 12 months, 18 months and what we think -- what you think ESPN looks like a couple of years from now? And specifically, if you think you can grow this business from an OI point of view while navigating what is clearly a still inflationary sports rights environment? And then, I would love to just get your perspective on sort of the health of the IP at your studios. I know we've talked about this a lot since you've come back into the CEO role. But you've specifically a lot of Marvel content coming, both on TV and film over the next couple of years. That's an area investors are particularly focused on. How are you feeling about the sort of pipeline on the Marvel side specifically and whether you think that this IP is being reinvigorated to the extent you'd like it to be? Thanks a lot. Bob Iger: Thanks, Ben. First on ESPN, I think you have to start in terms of projecting the next 12 months to 18 months and also considering where it might go from an OI perspective as it transitions more to a digital business. You have to look at today and the ratings success of ESPN's phenomenal menu of sports product or the ratings success of live sports in general across the business. I mean, what you saw with obviously the women's NCAA basketball championships, but across the board I mentioned in my comments what the April numbers look like, highest April on record as for instance in primetime at ESPN. So, I see sports continuing basically to shine in a world where there's just considerably more choice, Live matters. The other thing that's really important is the engagement that Live generates. And I mentioned in my comments, which we haven't really talked about much, and I guess a lot of attention has been on the JV that we announced as well as on flagship, which has taken ESPN direct at the end of '25. But at the end of this year, we're going to put an ESPN tile on Disney+, which will have a modest amount of programming. But it's a start in terms of essentially conditioning the audience or subscribers to Disney+ and Hulu, the fact that sports is going to be there. And it also will help us in terms of overall engagement with our bundle. As I look ahead, I think ESPN is going to make a pivot toward digital, but without abandoning linear. So, it will remain on linear. If people want to get ESPN and its different channels through a cable or a satellite subscription, that's fine. Or if they want to pivot smoothly because the -- there will be many different access points to get the digital product to ESPN Digital, they can do so as part of a bundle with other sports services, they can do so directly from ESPN with the ESPN app or they can do it as part of a bundle with our own services. So, I feel very bullish about it. You also have to look at the menu of sports rights that ESPN has bought. And Hugh did a good job describing this on the air this morning in one of his interviews. First of all, we've locked up long-term deals with significant sports organizations that includes the college football championships, all the NCAA championships and the NFL. We're confident or optimistic we're going to end up with an NBA deal that will be long term in our best interest and the best interest of our subscribers. And then, you look at all the studio product, there's really nothing like ESPN in the sports world and their hand is solid for the next decade. So, I feel I'm very bullish, smooth transition to digital, multiple touch points for the consumer, quality programming and sports in general live being very, very attractive in terms of its programming. IP at the studio, I've talked a lot about this, as you know. I feel great about the slate coming up, including three of the big movies that we have with Planet of the Apes this weekend, followed by Inside Out 2, which is a great film, and then Deadpool, you mentioned Marvel, Ben, in -- coming in July. And then at the end of the ear, we've got -- well, we have Alien the end of the summer, and then we've got Moana 2 and Mufasa at the end of the year. I've -- we've been working hard with the studio to reduce output and focus more on quality. That's particularly true with Marvel. I know you mentioned television shows. Some of what is coming up as a vestige of basically a desire in the past to increase volume, we're slowly going to decrease volume and go to probably about two TV series a year instead of what had become four and reduce our film output from maybe four a year to two to the maximum three. And we're working hard on what that path is. We've got a couple of good films in '25 and then we're heading to more Avengers, which we're extremely excited about. So, I -- and overall, I feel great about the slate. It's something, as you know, that I've committed to spending more and more time on. The team is, I think, one that I have tremendous confidence in. And the IP that we're mining, including all the sequels that we're doing is second to none. So, I feel really good about what's coming up. Ben Swinburne: Thank you. Alexia Quadrani: Operator, next question please. Operator: Absolutely. Our next question comes from Jessica Reif Ehrlich with Bank of America Securities. Please go ahead. Jessica Reif Ehrlich: Thank you. I will also have two different topics. First on, I guess, advertising direct-to-consumer. Can you give us your thoughts going into the upfront, particularly with the integration of The Trade Desk and Google DV 360? How does that impact advertising? And any comment you can give us on password sharing, like, when will you implement it in multitude of borrowers or sharers? And then last thing on DTC, but ESPN+ lost subs, which was a little surprising. Can you give us some color on what happened there? And then turning to sports, Bob, you mentioned the confidence of getting the NBA for a long-term contract. But I guess everybody is expecting that you'll pay a lot more, probably get fewer games. Is there any comment that you can give us on your outlook for profitability with the new contract? And will the conclusion of the NBA negotiations open the door to strategic investment? Bob Iger: You want to take it? Hugh Johnston: Sure, I'll take it. Thanks for the question, Jessica. I think that was two questions, parts A through E, if I captured it correctly. In terms of advertising, generally speaking, the advertising market is pretty healthy right now as we head into the upfronts. Certainly, live and sports are playing out very well. In addition to that, we feel good about the offering we have, particularly in terms of the premium offerings that we have, both in sports as well as with the Disney+ offering. The challenge obviously in the advertising market right now is there's a lot more supply in the market largely as a result of one of our competitors entering the ads here. But that said, I think generally speaking, we feel like we're in a better place than we were a year ago and we have healthy momentum across nearly all the categories. Auto maybe one exception and maybe to some degree electronics as well. But by and large, demand is out there and it's pretty high. So as we lap our way out of the supply increase, I think we're going to be in a good spot as we enter next year. Bob Iger: Password sharing, beginning next month in very select markets, we're starting to go after people who are sharing passwords improperly and that will roll out in earnest or across the globe in September. We feel quite bullish about it. Obviously, we're heartened by the results that Netflix has delivered in their password sharing initiative and believe that it will be one of the contributors to growth, as Hugh noted, going forward. I think it's also important to note, Netflix is in many respects a gold standard when it comes to streaming. But what I mean by that is, if you look at programming, we stack up really well. We have a great lineup and quality of programming across not just ESPN and Disney+, but also Hulu. What we're building is the technology that Netflix has had in place and has been building for well over a decade to improve the business from a bottom line perspective. And that starts with password sharing, but it's all the things that Hugh mentioned as well. So I feel good about this being a necessary and very, very productive next step in terms of rolling out the technology that we need to get to the double digit margins that Hugh has talked about. Lastly, in terms of the NBA, I'm really not going to comment about profitability or about the cost of the package, except to say, as we've said before, we continue to look at the NBA, not only as a premium sports product, but as a sports product that has growth ahead of it, obviously with great demographics. We feel really good about the potential package that we will end up with in terms of it basically enabling ESPN to continue to shine in the television sports business. And I think it would be, I won't say anything more about it at this point. If and when there's an announcement, we'll give more details. Hugh Johnston: And then last on your question around the timing on ESPN+ subscriptions, that's normal seasonality. That's one of the challenges when you look at things from one quarter to the next, the seasonality tends to get ignored. At the end of college football season, we do typically see a decline. So nothing out of the ordinary there. Alexia Quadrani: Thank you, operator. Next question. Operator: And our next question comes from Robert Fishman with MoffettNathanson. Please go ahead. Robert Fishman: Hi, good morning. One for Bob and one for Hugh if I can. Bob, back to sports just maybe more broadly. As you think about which sports rights to invest in, how important is securing global rights to drive the international growth for ESPN or even Disney+ as part of your analysis to drive returns to combat the sports rights increases? And then for Hugh, as a follow up to the theatrical slate that Bob was speaking about before, can you just help investors think about the Disney Studio profit potential and success and maybe even relative to pre-COVID peak level? Thank you. Bob Iger: I'll start on the sports question. We have selective rights -- international rights for sports of the sports properties that we've licensed largely for the United States. We also have an array of sports rights in Latin America. Many of them came with the acquisition of 20th Century Fox. We're being selective about adding international rights right now where possible, where when the opportunity exists, we're doing so, but we're not investing heavily at this point in growing international rights, except again where we can buy them along with the rights that we're licensing for the United States. It's an opportunity for us to plant the seeds of more growth for ESPN outside the United States, but we're walking before we run in that regard. Hugh Johnston: And then Robert, to answer your question about studio profitability, as I've looked back, studio profitability has got some cyclicality to it, and we certainly feel very good about the upcoming slate. That business should get back to profitability, and we certainly feel good about it being a healthy, profitable business over time. Beyond that, I don't want to get into quarterly guidance on a subcomponent of one of our segments. That's just getting a little bit too low into the details. Alexia Quadrani: Thank you, operator. Next question. Operator: And our next question comes from Kannan Venkateshwar with Barclays. Please go ahead. Kannan Venkateshwar: Thank you. So, in terms of the Theme Park business, maybe Hugh or Bob, if you could talk about the growth framework which anchors your CapEx plan, it's obviously a pretty significant plan over the next decade. And the business has grown over mid-single-digits over -- for a very long period of time. How much upside do you see to this trajectory over the investment horizon? And then, Bob, from a succession planning perspective, you've obviously been highly engaged with the Board on this. Could you talk about what your goal is in terms of the hand-off? What do you hope to achieve in your tenure before the next CEO takes over? Thank you. Hugh Johnston: Okay. I'll take the first one. Regarding the investment in the Parks, you know the financials of that business well. It's a 25-plus margin business and has been for an extended period of time. It has terrifically high guest satisfaction scores, which create layers of advantage, which suggests we should be able to stain -- sustain high margins and high returns on investment. With a business with that profile, you invest in it. We know there are lots of opportunities to continue to grow attendance, both domestically and internationally. And the Cruise business, frankly, is one that has an enormous number of opportunities for us over time, and that is why we're leaning more heavily into that business. So, we're not investing capital, obviously to achieve poor returns. We expect to get excellent returns out of the business, in particular in Cruises, given the margin profile of the business and the fact that it's got the highest guest satisfaction scores in the Company. This leads us to conclude this is a business with a lot of runway left in it and that will deliver great returns to our shareholders. Bob Iger: Regarding succession, Kannan, as we've said before, the Board is heavily engaged in the process and has appointed a succession planning committee that is meeting on a regular basis to not just discuss, but also to manage the process. I'm confident that they will choose the right person at the right time. And that to the extent that I can, we'll participate in a smooth transition. Alexia Quadrani: Operator, next question, please. Operator: Thank you. Our next question comes from John Hodulik with UBS. Please go ahead. John Hodulik: Great. Thanks. Bob, engagement on Disney+ has been declining a bit based on the Nielsen Gauge data, although I guess it's ticked up a bit here recently at Hulu. The ESPN tile definitely makes sense, but can you talk about efforts to boost viewership on the platform, including the revamp of the technology and maybe the UI that you referenced last quarter? When should we expect to see these benefits or that technology rolled out? Anything you can tell us about engagement for users on the new combined Disney+ Hulu platform? So, that's one, I guess, with multiple parts. And then following up on ESPN+, again you lost subs again this quarter. What's the plan for that service once the flagship platform is launched next fall? Thanks. Bob Iger: Hey, John, I'm happy to talk about engagement a little bit on the platform. As I mentioned earlier, the things that we believe drive engagement and still represents significant incremental opportunity for us is, number one, programming. Having terrific programming is obviously the leading factor. And with what we've been introducing recently, whether it's Shogun, whether it's The Bear over the next couple of years on the TV side, and obviously, the terrific movie slate that's right in front of us. As we window it into the streaming service, we think that's going to do great things for engagement. In addition to that, things like recommendation engines obviously increase engagement because people are getting more of a sense of what it is that they want to watch based on the suggestions that we make. In addition to that, we do see bundling as an opportunity, sports bundling, which is why we're putting the ESPN tile on. In Latin America, we're combining all into the Disney+ app. Again, all this is geared towards driving engagement. So, overall, you can be confident we've got laser-focused on driving engagement because we know it leads to subscriber satisfaction and it leads to lower churn over time. Alexia Quadrani: And, John, your second question was about our strategy for ESPN+ once we launch flagship. Was that the question? John Hodulik: Yeah, exactly. I mean, is that going to remain a separate service sort of alongside the sort of full-blown ESPN streaming service once that's launched next year? Bob Iger: The plan is if you buy ESPN flagship, then you'll get all the ESPN+ programming in it. If you do not want that, then you can buy ESPN+ on its own. In addition, if you -- our current plan is that with the tile that we're putting on the combined Disney+ Hulu app, the ESPN tile, you'll be able -- if you're an ESPN+ subscriber, you'll be able to get ESPN+ through that tile. John Hodulik: Thanks. Alexia Quadrani: Operator, next question, please. Operator: Thank you. Our next question comes from David Karnovsky with JPMorgan. Please go ahead. David Karnovsky: Hey, thank you for the questions. Maybe following up on the studio commentary from earlier. As you noted, your upcoming slate is a number of sequels and that's a strategy where you've had a lot of success in the past. But as you look out over the medium-term, how do you think about the balance of leaning on established franchises versus investment in new IP? And then separately, when we look at your summer releases, there are several films from 20th Century Fox IP. So, wanted to see what opportunity you think there is to bring more titles from the Fox Library to the forefront. Thank you. Bob Iger: We're going to balance sequels with originals, particularly in animation. We had gone through a period where our original films in animation, both Disney and Pixar, were dominating. We're now swinging back a bit to lean on sequels. And so, we've talked, as you know, about Toy Story and obviously Inside Out this summer. I just think that right now, given the competition in the overall movie marketplace that actually there's a lot of value in the sequels obviously because they're known and it takes less in terms of marketing. In terms of Marvel specifically, it implies there too, we actually have both. Thunderbolts for instance, is coming up in 2025 as an original. And then, of course, we mentioned Deadpool this summer, which is a sequel and I talked about Avengers and Captain America is coming out in 2025. It will be -- it will just be a balance, which we think is right. In terms of 20th Century Fox, we continue to look at the library to see what can be mined. I mentioned Alien earlier. We've talked about Avatar 3, which is coming. Obviously, Planet of the Apes where there might be more opportunity pending the success of the film to do more. I don't think we'll necessarily lean into the library, but we'll continue to look opportunistically at it. Alexia Quadrani: Thank you. Operator, next question, please. Operator: Our next question comes from Michael Morris at Guggenheim. Please go ahead. Michael Morris: Thank you. Good morning. Two questions. First, can you expand or give us an update on the Charter partnership you mentioned a couple of times? I know it was the first quarter of that kind of new relationship or at least new structure. So, the questions are, how did that subscriber base perform from an engagement perspective? How was churn? Did the quarter reflect the full impact at this point from a financial perspective? And is this a template that you do expect to use more frequently going forward? So, that's the first topic. And then second, I wanted to ask about licensing content and what your view is or your updated view of licensing your content off-platform, what the growth opportunity is there and whether you kind of look at -- the so-called Netflix effect is something you could benefit from by licensing off-platform or whether you want to create that effect yourself on your own platform and keep content in-house? Thank you. Hugh Johnston: Yeah, I'll take the first question on this. Look, it's very early days, obviously, in terms of the charter deal. During the quarter, it was only in place for a couple of months. That said, we're happy with it so far. We obviously have gotten added subscribers. And in addition to that, cannibalization has not been very high. And overall, the engagement has been good. So, as for it being a template for the future, I don't think I would go to that level. Each of these deals in many ways has to be architected to the specific needs of the partner as well as our needs. So, I don't think I would think of it as a template for the future, but it's been a successful deal for us and for Charter. So, we feel good about it. Bob Iger: We are already doing some licensing with Netflix and we're looking selectively at other possibilities. I don't want to declare that it's a direction we'll go more aggressively or not, but we certainly are taking a look at it and being expansive in our thinking about it. We had previously thought that exclusivity, meaning our own product on our own platforms, had huge value. It definitely does have some value. But as you know, we're also watching as some studios have licensed content to third-party streamers, and that creates more traction, more awareness and in effect it increases not only the value of the content from a financial perspective, but just in terms of traction. So, we're going to -- we're looking at it with an open mind, but I don't think you should expect that we'll do a significant amount of it. Alexia Quadrani: Okay. Thanks for the questions, and I want to thank everyone for joining us today. Note that a reconciliation of non-GAAP measures that we referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Let me also remind you that certain statements on this call, including financial estimates or statements about our plans, guidance or expectations and drivers, including future revenues, profitability, DTC subscribers, free cash flow, adjusted EPS and capital allocation and other statements that are not historical in nature may constitute as forward-looking statements under the securities 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, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results expressed or implied in light of a number of factors. These factors include, among others, economic or industry conditions, competition and execution risks, including in connection with our business plans, potential strategic transactions and our content, cost savings, the market for advertising, our future financial performance and legal and regulatory developments. In particular, our expectations regarding DTC profitability, subscriber levels and ARPU are built on certain assumptions around subscriber additions based on the future strength of our content slate, churn expectations, the financial impact of Disney+'s ad tier, pricing decisions, bundling and availability of Hulu on Disney+, technological advances and paid sharing efforts, our ability to continue to rationalize cost while preserving revenue and macroeconomic conditions, all of which, while based on extensive internal analysis as well as recent experience, provide a layer of uncertainty in our outlook. For more information about key risk factors, please refer to our Investor Relations website, the press release issued today, the risks and uncertainties described in our Form 10-K, Form 10-Q and other filings with the Securities and Exchange Commission. We want to thank you for joining us, and wish everyone a good rest of the day. Operator: The conference has now concluded. We thank you all for participating in today's call. You may now disconnect your lines, and have a wonderful day.
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.
Disney's Strategic Decisions and Market Impact: An Analysis
Disney's Strategic Decisions: A Critical Analysis
InvestorPlace's comparison of Walt Disney (NYSE:DIS) to Blockbuster's failure to adapt highlights a critical concern for investors and market watchers. The entertainment giant's strategic decisions, particularly its heavy investment in streaming services and the acquisition of 21st Century Fox for a staggering $71.3 billion, are under scrutiny. This critique is rooted in the observation that Disney's pivot to streaming, despite its current lack of profitability, and the declining performance of its traditional cable and movie businesses, might not have been the most judicious use of its resources. The suggestion that Disney could have instead expanded its highly lucrative parks business internationally or entered the online sports betting market earlier through its ESPN brand, offers an alternative path that might have diversified its revenue streams more effectively.
The financial performance of Disney, as reflected in its recent stock price movement, provides a nuanced picture. The company's stock price saw a modest increase of 1.04, or 0.92%, to close at $113.66. This movement occurred within a trading day that saw the stock fluctuate between $112.80 and $114.11. Over the past year, Disney's stock has experienced a wide range, hitting a low of $78.73 and a high of $123.74. With a market capitalization of approximately $208.49 billion and a trading volume of 7.41 million shares, Disney remains a heavyweight in the entertainment industry. These figures suggest that despite the strategic concerns raised, the market still holds a considerable amount of confidence in Disney's overall value and potential for recovery.
The critique from InvestorPlace about Disney's strategic direction is particularly poignant when considering the broader context of the entertainment industry's evolution. The shift towards streaming services has been rapid and unforgiving to those who fail to adapt effectively. Disney's decision to double down on streaming, through both its investment in technology and content via the acquisition of 21st Century Fox, was a bold move. However, the critique suggests that this strategy may not be paying off as hoped, especially when compared to the potential of expanding its already successful parks business or leveraging its ESPN brand to enter the online sports betting market sooner.
The financial data, including the recent uptick in Disney's stock price and its substantial market capitalization, indicates that while there are strategic concerns, the company is far from a position of weakness. The stock's performance over the past year, with a significant range between its low and high points, reflects the volatility and uncertainty in the market. However, it also shows resilience and potential for growth. Disney's ability to navigate the changing landscape of entertainment consumption and competitive pressures will be crucial in determining whether its current strategic bets will pay off in the long run.
In summary, while InvestorPlace's critique of Disney's strategic decisions sheds light on potential missteps, the company's financial health, as evidenced by its stock performance and market capitalization, suggests a more complex picture. Disney's journey through the evolving entertainment landscape is a testament to the challenges and opportunities that come with trying to adapt to new consumer habits and technological advancements. The coming years will be telling in whether Disney's strategic focus on streaming and content acquisition will solidify its position as a leader in the entertainment industry or if alternative strategies might have offered a more effective path to sustained growth and profitability.
