The Walt Disney Company (DIS) on Q3 2024 Results - Earnings Call Transcript
Operator: Good day and welcome to The Walt Disney Company Third Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After some brief introductory remarks, 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, Vice President, Investor Relations. Please go ahead. Alexia Quadrani: Good morning. It's my pleasure to welcome everybody to The Walt Disney Third Quarter 2024 Earnings Call. Our press release, Form 10-Q and management's prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast and a replay and transcript as well as the third quarter earnings presentation will all be made available on our website after the call. As we previously announced, today's call will follow a new format consisting only of a question-and-answer session. Joining me this morning are Bob Iger, Disney's Chief Executive Officer; and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. As we start the Q&A session, 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: Yes, ma'am. [Operator Instructions] Today's first question comes from Jessica Reif Ehrlich with Bank of America. Please go ahead. Jessica Reif Ehrlich: Thank you. I'm going to try to squeeze in two, one on theme parks and one on NBA. So first on theme parks, there's really a lot of moving pieces here. Can you provide color on global park demand and where you expect this protracted weakness? Maybe include the benefit from cruise ships, since you have three ships coming on over the next, I guess, 18 months or so. And with the stated fiscal Q4 mid-single-digit decline and the expectation that this will last for several quarters, is that the right level to think about OI as we think about fiscal '25? And on the NBA, with the rights now complete, you'll likely have several hundred million dollar step-up when the new contract begins in fiscal '26. Are there incremental monetization drivers, including maybe WNBA growth that can make the new contract profitable in the early years? Thank you. Hugh Johnston: Great. Thanks, Jessica. This is Hugh. Good morning. That was a six-part first question. So I'll try to answer it as best I can. First, just to sort of peel apart Q3 again. I want to emphasize we actually had 2% revenue growth in Q3. The reason, obviously, is the IP is so strong in our parks. It really does attract a strong audience and people are reluctant to cancel vacations. So while we saw a slight moderation in demand, I certainly wouldn't call it a significant change. That said 40% of the Experiences business is actually not domestic parks. It's either international parks or consumer products and that's from an operating income perspective. 60% is domestic parks, including cruise ships. Within that, we saw attendance flat in the quarter and we saw per caps up a little bit. We expect to see a flattish revenue number in Q4 coming out of the parks. And as we mentioned in, earlier in the letter, really just a few quarters. So I don't think I'd refer to it as protracted, but just a couple of quarters of likely similar results. Now, keep in mind, we do have some expenses attached to our ships coming in and that will affect us a bit in '24 and a bit in '25. But overall I would just call this as a bit of a slowdown that's being more than offset by the entertainment business both what we've seen so far and our expectations for Moana 2 as well as Mufasa. Robert Iger: Regarding the NBA deal, Jessica, first of all, let me just remind you and everyone that the deal doesn't kick in next year, it's a year later. We have one more year on the current deal. And as we looked at it, first of all, one goal was to maintain what we'll call the A package, which means we've got the finals for 11 more years or now we have the finals for 12 years and they drive significant value for us. Also, overall, the deal reflects the value of live programming. We know that that's been an advertiser's delight and also an audience's delight. It also reflects the growing value of basketball and the growing value of women's sports. There's a large WNBA component to this. Also as part of this deal and has been the strategy of ESPN for a while to lock in sports rights for a long period of time. It secures our ability to bring ESPN in the digital direction, particularly as we look to launch flagship sometime at the end of 2025. So we believe that by the time this kicks in and a year from now that a lot of the pieces will be in place in terms of driving more advertising revenue, more distribution revenue, moving to digital. And another thing that we've done here is we've secured international rights, particularly to the finals, not in every market around the world, but in most markets. And that will drive some added revenue as well. Not going to be specific about the profitability in the early years, but there's tremendous value in this deal. Alexia Quadrani: Thank you. Next question. Operator: Thank you. Our next question today comes from Ben Swinburne at Morgan Stanley. Please go ahead. Benjamin Swinburne: Thank you. Good morning. Maybe for Bob. I wanted to ask you about sort of the outlook for Disney+ both in the context of where the product's going, but also how this becomes a significant earnings contributor to the company as you look ahead. We look at the product, it's really broadening. You've got obviously brought in Hulu. Now you're adding news. A lot of sports, ESPN coming in. You've added the international NBA rights to the product overseas. What's the vision here? And in your mind, does it support both continued subscriber growth and pricing power? I think there's probably some concern out there that the recent price increases might face some consumer pushback. So I'd love to get your thoughts on that big topic. And then just wanted to clarify, Hugh, when you say flattish revenue, Q4, are you talking about at the Experiences segment level or is that just the domestic parks comment? Just wanted to clarify. Thank you. Robert Iger: Let me start by saying that what we've been seeing with streaming is significant success, driven largely by the success of our creativity, whether it's in the television side. The company had 183 Emmy Nominations, for instance, led by shows like Shogun and The Bear and Abbott Elementary and Only Murders in the Building. And I can go on and on. And obviously on top of the television success creatively, we've had huge success in the motion picture front recently. And when you look at what the current motion picture lineup drives in terms of value on streaming, it's profound. So Inside Out, as it's in our comments today, the first film has had tremendous consumption since the first trailer for Inside Out 2 launched in November. The same thing is true for the early Deadpool movies, for the early Planet of the Apes movies, I could go on and on. So when we look across our portfolio of IP, and this includes Disney branded, Fox branded, obviously everything that's on Hulu, programming from FX, programming from ABC, National Geographic, what we're basically seeing is we're seeing growth in consumption and the popularity of our offerings, which gives us the pricing leverage that we believe we have. So every time we've taken a price increase, we've had only modest churn from that. Nothing that we would consider significant. We believe that as we add these new features like the channels that we're going to be adding later this year that and the success of our movie slate, and I'll get into that a little bit more, that the pricing leverage that we have is actually increased. We're not concerned. The goal is to grow engagement on the platform. And what I mean by that is obviously offering a wider variety of programming, which is why we're adding news, why we're adding the ESPN tile to it, while we're bundling aggressively to give consumers the ability to buy across all of our basically creative engines. And we feel very bullish about the future of this business. We're not saying much more about it, except you can expect that it's going to grow nicely in fiscal 2025. The other thing I want to add is that we've been talking a lot about adding the technology features that we need to basically make it a higher return, a higher margin business and a more successful business. And we're doing that right now. We started our password sharing initiative in June. That kicks in, in earnest in September. By the way, we've had no backlash at all to the notifications that have gone out and to the work that we've already been doing. We know that we need stronger recommendation engines and we're working on that technology and we need to make our marketing more efficient. But by adding all of these features, both on the technological side and also on the programming side, we're bullish about the future of this business. And then when you think about it over to Hugh mentioned Moana and Mufasa, let me just read to you the movies that we'll be making and releasing in the next almost two years. We have Moana, Mufasa, Captain America, Snow White, Thunderbolts, Fantastic Four, Zootopia, Avatar, Avengers, Mandalorian, and Toy Story, just to name a few. And when you think about not only the potential of those in box office, but the potential of those to drive global streaming value, I think, there's a reason to be bullish about where we're headed. Hugh Johnston: And Ben to answer your other question, flattish was a reference to Experiences. Alexia Quadrani: Thank you. Next question, please. Operator: Yes, ma'am. Our next question today comes from Robert Fishman with MoffettNathanson. Please go ahead. Robert Fishman: Thank you. Bob, as you think about the future of content spending for Disney, especially after the NBA deal and all the content that you're just talking about now. What is the right balance of investment between sports, scripted TV and movies going forward? And then for Hugh, can you just update us on free cash flow expectations this year with one quarter to go and how to think about the parks impact and the content spending on free cash flow in '25? Thank you. Robert Iger: Well, we obviously are investing significantly in all directions because of the value that it creates and also because of the value that it represents to our future in streaming. We talked about sports, the long-term deals that we've made. Obviously, College Football is part of that. And on top of the NBA, on top of the NFL, on the movie side, we've talked a lot about our the creative improvements that our studio has brought to bear and the quality of the IP and the known quality of our IP. And television, I can't say enough about how great our television businesses have been performing both in terms of the bottom line, but also in terms of creatively. You don't get 183 Emmy Nominations by accident. That's the work of a lot of really great, talented people, meaning on the management side, working with a lot of talented, creative people. So it's a balance, it's a mix and I think it's one that you'll ultimately see really blended together as our streaming platform grows over time. Hugh Johnston: And, Robert, on free cash flow. We had previously guided to $8 billion. We don't have any news on that, but if there were a material change on it, obviously we would have changed the guide. Alexia Quadrani: Thank you. Next question, please. Operator: Thank you. And our next question comes from Steven Cahall with Wells Fargo. Please go ahead. Steven Cahall: Thanks. So, Hugh, you talked about DTC getting to double-digit margins with the big price increases and the paid sharing efforts coming. I was wondering if you could just update us on your thinking. We'd love to get some timing around double-digit margins if that's something you're comfortable with at this point, but any context would be helpful. And then just on parks, as we think about cruise ship pre-opening costs in there, what's implied in the fourth quarter and as we think about cruise pre-opening costs in fiscal '25, what do those look like? I think you'll sail the Treasure, but you've still got the Adventure and the Destiny. I think the Singapore dock is a little heavier on cost, so we just love to understand that component. Thank you. Hugh Johnston: Sure. Happy to talk about both. In terms of the journey on getting to double-digit margins, the levers haven't changed and frankly we're actually doing quite well with them. Bundling has had a positive impact on churn. So from that perspective, obviously, that helps us with growth, which is one of the drivers. Password-sharing is just starting to roll out. That's also going to be helpful in terms of driving growth. We've announced pricing and we feel good with all of the value that we're providing to consumers. With all the creative that Bob mentioned earlier and all the creative that's still to come. We do feel like we've earned that pricing in the marketplace and we feel positively about that. With that will come scale benefits. The product improvements also should reduce churn and keep our consumers with us as they're evaluating their options. And then obviously we're going to look at the entire cost structure and continue to drive productivity. In terms of timing, no update on that. It's something that we've said we are approaching with great urgency. We still intend to do that. Obviously, I think, we've made a ton of progress. We were losing $1 billion a quarter not all that long ago and now we're making money and our expectation is we're going to continue on that journey to making more money to get to and then ultimately well surpass the double-digit margins that we've talked about. Regarding the cruise ships, we've shared a number for this year. The number will be a little over double that in terms of the startup costs in 2025. So you can assume that, that'll be about that. That said, the cruise ships tend to pay back very quickly. So we certainly feel positive about those investments. Alexia Quadrani: Thank you. Next question, please. Operator: Thank you. And our next question comes from David Karnovsky with JPMorgan. Please go ahead. David Karnovsky: Hi. Thank you. On Sports, Bob wanted to see if you could update on strategic partner conversations for ESPN. Is this still a priority? And if so, can you refresh on what you're looking for in terms of marketing or content? And then for Hugh, in the exact commentary, there's multiple references to tightly managing costs. So I wanted to see if you could expand on this, where you're realizing savings now, how much opportunities left? Thanks. Robert Iger: I know I've sounded like a broken record because I've talked about strategic partnerships for ESPN over the last number of quarters. The only thing I can say is, believe it or not, we're still having conversations about it. We thought and continue to believe there may be opportunities to partner with others, particularly on the content side, and that's why we've continued to explore it. But nothing more to add. Hugh Johnston: Right. And regarding cost, recall, our original cost estimate was $5.5 billion. We raised that to in excess of $7.5 billion. Look, in big companies, my worldview is there's always opportunity to do more with less. So we're going to continue to go after it aggressively as we can to both deliver the bottom line and to invest back in the business with all the great opportunities we have. Alexia Quadrani: Thank you. Next question, please. Operator: Thank you. And our next question today comes from John Hodulik with UBS. Please go ahead. John Hodulik: Great. Maybe first on the parks. Any further details in terms of the softening and the flat revenues that you expect for 4Q and looking out into '25. I mean, do you expect attendance to continue to soften or potentially turn negative and just any commentary on what you're seeing or expectations are on the per cap side? And then secondly, Venu launches this fall, just any expectations in terms of what it could do to trend in the linear business for you guys? Thanks. Hugh Johnston: Yeah, I'll take that. In terms of the parks business, I've kind of given you a lot of our expectation already. I'm not sure I'm ready to peel it down to attendance versus per caps. I think, again, we're going to be pretty consistent with what we saw in Q3. And we talked about the fact that the lower income consumer is feeling a little bit of stress. The high income consumer is traveling internationally a bit more. I think you're just going to see more of a continuation of those trends in terms of the top line. And then the bottom line will be reflective of the fact that we've got some one-time costs coming in and going out both this year and last year. I do expect to see international strengthen. Disneyland Paris has obviously felt some challenge due to the Olympics. Not a surprise, but something that happens. And the good news is the Olympics are over in a couple of weeks and the booking will certainly look good in that regard. So overall feeling positively on that front. Alexia Quadrani: Next question, please. Operator: Yes, ma'am. Our next question comes from Michael Morris at Guggenheim. Please go ahead. Michael Morris: Thank you. Good morning, guys. I wanted to ask you on ARPU at domestic Disney+. It did slip a little bit in the quarter and you cited the impact of subscriber mix shift. Are you saying that that's a function of bundling in terms of mix shift or is it mix shift to the ad-supported tier? And if so, can you talk a little bit about what you're seeing in the CTV environment, how you're performing there? And just one follow-up on the Experiences segment. We generally think of parks vacations as being booked pretty well in advance. So it was a little bit surprising to hear about demand moderation within the quarter. So can you help us a little bit with how much visibility you feel like you have? And if it does vary by quarter, if there's maybe less advanced bookings in certain quarters versus others? Thank you. Hugh Johnston: Yeah. To answer the question on ARPU, you hit both points correctly. Number one, bundling has a small effect. And then in addition to that, the shift to the ad model certainly has a small effect as well. From a profitability standpoint, we're pretty happy with whether people choose the ad model or the ad-free model. Regarding visibility, we do have very good visibility, which is why I'm emphasizing. These are really all changes at the margins, daily visitors and late bookers and things like that. Looking forward, we have very good visibility into the book that we're expecting, which is why I've got a good level of confidence in the projections that I'm sharing with you. Alexia Quadrani: Thank you. Next question, please. Operator: Our next question today comes from Bryan Kraft at Deutsche Bank. Please go ahead. Bryan Kraft: Hi. Good morning. I had two if I could. Just first on advertising. You highlighted the strong results from the upfront this year, which is very encouraging. But I wanted to ask what you're seeing more immediately in terms of advertising demand today, given some of the macro pressures that have recently come to light. Are advertisers becoming more cautious? Are you seeing that in more in the real-time ad sales part of the business? And then just on the content sales and licensing part of the business, the press release mentioned increased sales of TV content and content sales, licensing, and other as a driver of the OI performance this quarter, along with the box office of course. Is there anything to read into this? Is it the beginning of a trend toward increasing content licensing to third parties or is just a timing benefit or one-off? Thank you. Hugh Johnston: Sure. Happy to talk about it. Ad market is actually very healthy right now. We saw overall advertising grow 8% for the quarter. ESPN was up 17%, DTC streaming was actually up 20%. So certainly feeling very, very positively in that regard. And in terms of the categories, financial services, consumer products doing very well, consumer services doing very well and technology doing very well. Auto is a little bit softer in that regard. But overall, the ad market is really, really strong and healthy for us. And a lot of that is a product of the fact that we have live sports and the fact that our streaming service is doing so well in terms of the IP that we have. It's an attractive audience. We also have a new capability called Disney Streaming that allows us to basically sell across our platforms very effectively. We're selling audiences rather than just selling streaming channels, which enables advertisers to more effectively target the audiences that they're seeking. So from a technology perspective, we're seeing good payback. The second piece was around licensing. Yeah, the licensing numbers that you see are mostly a reality around the fact that we've had so much success at the box office. That's really what's driving things more than anything else. No change in our licensing strategy, which has been pretty clear. The things that we consider core IP to the company, we don't license. There are things that are non-strategic. We'll continue to license tactically. But it's not a big strategy for us. The big strategy is producing our own IP and monetizing it. Alexia Quadrani: Thank you. Operator, we have time for one more question. Operator: Yes, ma'am. Our next question comes from Kannan Venkateshwar with Barclays. Please go ahead. Kannan Venkateshwar: Thank you. So maybe in theme parks, I mean, there's a few growth elements I guess over the next few years in terms of cruise ships and broadly other CapEx investments that you're making in the parks. Maybe if you could just step back and talk about what kind of growth impact you expect, maybe over the next two or three years, and if that can offset to what extent that can offset some of the weakness you're seeing in the parks, that would be useful. And then one other segment which probably goes out of your numbers next year is India. And that's been a loss-making business. So to the extent you can talk about the potential earnings contribution once India is deconsolidated that would be much appreciated. Thank you. Hugh Johnston: Yeah. Good morning, Kannan. Two things. One, obviously, the investments that we're making into the Experiences business, we feel very, very good about it. It's been a great returning business for a long time. So while I'm not here to give you long-term guidance in terms of that segment of the business. We wouldn't be making capital investments in an accelerated way if we didn't expect to accelerate growth out of those businesses and that's true of the cruise ships as well. Now, keep in mind, that the lead time on investments in this business are multiple years. So when exactly all of that manifests, we'll share with you as we go along. But, obviously, we're investing because we're looking to accelerate growth and hence the term turbocharge. Regarding the India question, we will share that when we close the deal. I think that's the right time to do it. And we'll lay it out for you all very clearly so that you can model it very, very effectively. Alexia Quadrani: Okay. Thank you. Thanks for the questions and I want to thank everyone for joining us today. Operator: Note that a reconciliation of non-GAAP measures that were 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 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 variety of risks and uncertainties, and actual results may differ materially from the results expressed or implied in light of a variety of factors. These factors include, among others, economic or industry conditions, competition and execution risks, including a 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 based on the future strength of our content slate, churn expectations, the financial impact of the Disney+ ad tier and ESPN flagship, pricing decisions, bundling and availability of our other streaming services on Disney+, technological advances and paid sharing efforts, our ability to continue to rationalize costs 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, and 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.
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.
