The Walt Disney Company (DIS) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Walt Disney Company's First Quarter 2021 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your host today, Lowell Singer, Senior Vice President of Investor Relations. Please go ahead. Lowell Singer: Good afternoon, and welcome to The Walt Disney Company's first quarter 2021 earnings call. Our press release was issued about 25 minutes ago and is available on our website at, www.disney.com/investors. Today's call is also being webcast and a transcript will also be posted to our website. We realize most of you are still joining us today from your homes. And we are once again hosting today's call remotely. So joining me from their homes are, Bob Chapek, Disney's Chief Executive Officer and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we'll be happy to take some of your questions. So with that, let me turn the call over to Bob, to get started. Bob Chapek: Thanks, Lowell, and hello everyone. I hope, you're all doing well and staying safe. Unfortunately, as you know, the COVID pandemic continues to present significant hurdles, for businesses and communities across the US and globally. And most important, it has taken a tragic toll, on way too many lives. Fortunately, there have been some encouraging developments, particularly with the availability of the vaccine. And we're pleased to be doing our part, by providing space at Disneyland for one of Southern California's major vaccine distribution sites. To-date more than 100,000 doses have been administered at our location. It's hard to believe nearly a year has passed since the start of the pandemic, which continues to negatively impact the operations of our company. For the first quarter, adjusted EPS in the quarter was $0.32 a share, compared to $1.53 a share last year. Christine will talk more in-depth about our results for the quarter. During this difficult time we have made significant changes while finding new and innovative ways to conduct our businesses. But at the same time, we have chartered a course for an even more deliberate and aggressive DTC push for Disney+, ESPN+, Hulu and Star. I'm really proud of how well our team has performed, in the face of a multitude of ongoing challenges, both creatively and across our parks and experiences, and legacy and DTC distribution platforms. We've been especially pleased with the success of our direct-to-consumer business. And our recent strategic reorganization has enabled us to accelerate the company's pivot, towards a DTC-first business model and further grow our streaming services. Disney+ has exceeded even our highest expectations, in just over a year since its launch with 94.9 million subscribers, as of the end of the first fiscal quarter. ESPN+ and Hulu have also performed well, with 12.1 million and 39.4 million subscriptions, respectively. Christine McCarthy: Thanks, Bob, and good afternoon everyone. Excluding certain items, diluted earnings per share for the fiscal first quarter were $0.32. In spite of the challenging circumstances we have faced with COVID over the past year, these results reflect the strength of our brands and experiences as well as our ongoing commitment to operate our businesses efficiently. This is the first quarter in which we are reporting under our new organizational structure. We filed an 8-K last week with the summary recast segment financial information for fiscal 2020. Today's discussion of our financial results will be organized by two segments: Disney Media and Entertainment Distribution or DMED; and Disney Parks Experiences and Products or DPEP. I'll start with our newest segment DMED where operating income increased modestly in the first quarter versus the prior year. Our financial reporting structure for DMED includes three lines of business: Linear networks; direct-to-consumer; and content sales licensing and other. Operating income at linear networks, which now includes both domestic and international channels decreased versus the prior year quarter due to declines both domestically and internationally. At our domestic channels, the decline in operating income was due to lower results at our cable business partially offset by an increase at our broadcasting business. The decrease at cable was largely driven by ESPN where results in the first quarter were significantly impacted by higher rights costs. This was largely due to timing of College Football Playoff games relative to our fiscal periods as well as higher NBA programming costs. Lowell Singer: Okay. Christine, thank you. And we're ready to transition to the Q&A. And as we do that, let me note that since we are once again not physically together this afternoon, I will do my best to moderate the call by directing your questions to the appropriate executive. So, with that Liz, we're ready for the first question. Operator: Our first question comes from Ben Swinburne with Morgan Stanley. Ben Swinburne: Thanks. Good afternoon. Bob can you -- I know visibility is limited, but can you tell us how you think about the parks through the rest of this year? In particular, Christine mentioned strong underlying demand. But do you expect to be able to increase capacity limits and fulfil that demand? And as you do, are there things that you've done on the technology or cost side that can help us think about the ramp back to breakeven? And then I was just wondering Christine, is there any way for you to help us think about the sports rights in fiscal 2021 versus fiscal 2020. There's been so much movement in a number of games between the two years. And obviously, these are big dollars for the company. I'm just wondering if there's any way you can help us think about that, maybe on an annual basis. Thank you, both. Lowell Singer: Okay, Ben. Thank you. So Bob, why don't you take the first question about parks and then we'll go to Christine on sports rights. Bob Chapek: Okay. In terms of the outlook for the parks for the rest of the year and the capacity, it's really going to be determined by the rate of vaccination of the public. That to us seems like the biggest lever that we can have in order to either take the parks that are currently under limited capacity and increase it or open up parks that are currently closed. So that is sort of the gating factor if you will. As Christine suggested, we have ample demand for our parks. Despite everything that's happening with that pandemic, I think we've made a pretty big impression on our consumer base and prospective guests in terms of the safety measures that we've undertaken at our parks to give assurances to people that they should come in and bring their families. And we're very, very pleased with what we're seeing in terms of future bookings. In terms of the cost savings and the technical side of things, not only has our industrial engineering team at Walt Disney World and some of our parks like Shanghai across the world figured out ways to have increased capacity with the same safety measures that we've had in place, which has enabled us to increase our, if you will, our attendance. But there we have been able to substantially manage our cost side at the same time to right-size, if you will, our -- not only our fixed cost base, but also our variable cost base to match what's happening. And I think that's evidenced by what Christine said that all of our parks, regardless of what conditions they're operating under, assuming they are operating, are in positive net contribution side. I would also add you didn't mention this, but I think it's important to add that given those per caps that Christine referenced in terms of the double-digit increase in per caps, this is sort of the ultimate situation where demand has exceeded supply. We've had that -- been fortunate enough to have that situation for the last couple of years and we've learned how to yield this business. And I think this is the ultimate situation where we've got supply greater than demand. So not only working on the cost side, but we're also working on the revenue side. And I think you see some of those results at play at Walt Disney World. Ben Swinburne: Got it. Christine McCarthy: Okay. Hi, Ben. Now to address sports rights and the shifting between fiscal years, because of what happened with not only cancellations but delays of some of the sporting events, you will see some doubling up of some sports rights in this fiscal year. Things like you'll have two NBA finals, assuming the season for 2021 continues as we expect. You'll also have things like two Masters, two seasons of IPL games. And this all assumes that in fiscal 2021 nothing is drastically shifted out. But you can expect the sports rights overall to be up, because of the doubling and the shifting into fiscal 2021. And that's on linear. When we look at our ESPN+ rights costs, those are up also because we acquired some additional rights, most significantly in soccer that we announced earlier last year. Ben Swinburne: Thank you, both. Lowell Singer: Okay, Ben. Thanks for the question. Operator next question, please. Operator: Our next question comes from Michael Nathanson with MoffettNathanson. Michael Nathanson: Thanks. I have two all. One is on DTC and the learnings from Soul being released directly versus what you experienced in Mulan. Any takeaways there? And maybe what's the right model for you? And then secondly on Hotstar, how important has cricket been to the growth in the adoption there? And is there a risk of churn when the IPL season comes to an end? Thanks. Lowell Singer: Okay. So, Bob, do you want to take the Soul question? And then, Christine, you might want to take the Hotstar question. Bob Chapek: Okay. In terms of the DTC business and Soul, as you remember, we took it out on Christmas Day, we thought that was a really nice thing to do for our consumer base and our subscriber base, given the holiday and given the fact that we have talked consistently about remaining flexible in terms of how we're going to go ahead and put our titles out into the marketplace. We were absolutely thrilled by what that brought to our business in terms of both acquisition and retention. And so, I would say, it was a big hit with our subscriber base. In terms of Mulan, I think the best thing I can say about Mulan is that it was successful to the extent that we're also using that strategy on Raya. So the individual decisions that we talked about in the future, in some films we'll take them theatrically and in some films we'll take them theatrically, plus Disney Premier Access as is the case with Raya and was the case with Mulan. And in some cases, we'll take it direct to service. It's going to be dependent, though, on what our slate of titles are and whether we think that we need to put something on the service for those particular guests, or whether this is something that we could use as another data point in our exploration of Premier Access date with theatrical. So it's really about flexibility and we're going to steer our decision-making over time, given what information that we get from our guests and our subscriber base on what they prefer. Michael Nathanson: Okay. And can I just follow-up for a quick second, on Black Widow, which is still I think a May release date? Anything you want to share on potential changes to that release date? Bob Chapek: Right. So I'm going to go back to the word flexibility, because we had made a reference at the investor conference that Black Widow was going to be a theatrical release and we are still intending it to be a theatrical release. But, again, we are going to be watching very carefully the reopening of theatres and the consumer sentiment in terms of desire to go back to theatres, to see whether that strategy needs to be revisited. But as of now the strategy is to continue on with the theatrical release and we'll be watching very, very carefully. Michael Nathanson: Okay. Thanks. Christine McCarthy: Okay. And I'm going to address the question regarding churn on Disney+ Hotstar, with the IPL season finishing up. So just to put it in context, cricket is a very important part of a diversified programming strategy at Disney+ Hotstar. It also has a lot of other local content that consumers like to view. So we did see a bump up when the IPL season started. But we've also made it economical for a consumer to sign up for a one-year subscription versus going month-to-month. So those are some of the things that we're looking at and utilizing to mitigate the churn that one could expect from IPL, but it's a more diversified offering in terms of programming than just cricket. Michael Nathanson: Thank you. Lowell Singer: All right. Michael, thank you. Operator, next question, please. Operator: Our next question comes from Alexia Quadrani with JPMorgan. Alexia Quadrani: Thank you. Just sort of following up on those comments. On Disney+, can you please discuss, maybe, in general, how you are thinking about local partnerships for content versus more traditional Disney content? I believe, in Indonesia, you leaned a lot more into local content partnerships and you saw outsized growth in that launch there. And I'm curious, sort of, maybe some broader commentary about that mix going forward? And then, my second question is, just sort of following up on your comments on churn. Not necessarily looking obviously for a number on churn, but maybe just some colour about churn in general for Disney+? And how we should think about it in front of the upcoming price increase? Lowell Singer: Okay. Alexia, thanks. So, Bob, do you want to talk a little bit about local partnership? And then, Christine, you can talk a little bit about churn. Bob Chapek: Okay. So in terms of the local partnership -- well, first, I'm going to talk about -- I'll talk about the content side, because there was a content side element of it as well. There's really two things that gate our amount of content that's local in any given market, including Indonesia. And in some cases there are local requirements for local content, as a percentage of the total. So that is one factor that plays into it. And then, second one is what we think we need from a portfolio standpoint of overall content. And as you might suspect, we're pretty aggressively ramping up all of our production for all our local territories. In terms of the partnerships, in Indonesia, we're partnering with Telkomsel and we have a lot of data plan and promotional bundling that we're doing with them which not only is, sort of, keeping the rates at a place that's respectable in the marketplace given the overall economy there and what the market will bear, but also is giving us exposure possibly from a marketing standpoint and promotional standpoint to particular audience segments that we may not otherwise be able to get. So -- and in terms of overall churn are you going to take that one Christine? Lowell Singer: Yes. Christine will. Christine McCarthy: Yes. So in general, we are very pleased with what we've seen so far on the level of churn. And as our product offering matures and we put more content into the service and our subscriber base becomes more tenured, we expect to see our churn rates continue to decline. So in regard to the specific churn related to the anniversary of the Verizon launch promotion from last November 2020, we're really happy with the conversion numbers that we have seen there going from the promotion to become paid subscribers. We also have that price increase that consumers know about and they're expecting. But we're very comfortable with the price-value relationship that we're offering. So we think that the $1 increase will be well-received. And we believe that our current and future pricing offers attractive value to consumers. So we feel really good about where we are but we always want to improve. Alexia Quadrani: Thank you. Lowell Singer: Okay, Alexia. Thank you. Operator, next question please. Operator: Our next question comes from John Hodulik with UBS. John Hodulik: Okay. Thanks. Maybe first on the parks, I mean, given the cost reductions and the efficiencies, can we expect longer-term margins in that segment to be higher once we get back to full capacity? And then maybe a quick one on the CapEx guidance. It looks like I think you guys revised guidance for CapEx. It was I think about $0.5 billion higher on a year-over-year basis. Can you just run through the items that keep it flat on a year-over-year basis? Thanks. Lowell Singer: Okay. John, sure. Thanks for those questions. Bob do you want to talk a little bit about parks? And then Christine you can talk a little bit about CapEx. Bob Chapek: I would characterize this last year as being not only a year of challenge, but also a year of learning in terms of what we can do, in terms of sustained margin growth in our parks. I say that because there's nothing like a pandemic to challenge the status quo and make you be fairly introspective about a lot of things that you've maybe taken as fairly dogmatic. I think you've all seen several new announcements about things that we've done recently that may have been heresy prior to the pandemic like recasting of our annual pass program at Disneyland and reconsidering the overwhelming demand we have relative to supply. Everything we do the first lens we look at is to exceed guest expectations. And it's very tough when your park has more demand than supply, we have to put limits on it. Well as you know, we have a wide variety of margins depending on the nature of the guest and how they visit and when they visit. So with a lens towards maximizing the guest experience, we are now able to essentially reset many pieces of our business both on the cost and revenue side of the business in order to say, if we had a blank piece of paper how would we set up our parks business and be a little bit more aggressive than we typically might be able to be without the impetus of unfortunately a year-long closure. So we've had a lot of time to think particularly, at Disneyland about what could be and I think you're about to see some of those strategies be born. Christine McCarthy: Okay. And before I talk about CapEx, I just want to say from my perspective the Parks management team has done an outstanding job addressing cost structure. Of course, variable costs will come back in as we ramp-up operations, but they've really looked at the way they're doing business and it's really been quite impressive. So I just want to add that to what Bob has already said. As it relates to CapEx, last earnings call we had said that we expected CapEx to be up from last year. I think the number was $550 million. But now we're expecting it to be relatively flat. We have here is a couple of dynamics. We'll have increased spending at DMED and corporate, but we're going to have reduced spending at Parks. Some of the DMED spending is going to be on things like technology, in infrastructure investments related to the launch of Star and DPEP at our Parks business. Obviously, the reason that the CapEx is slowing is because some of the parks are closed and we've chosen to slow spending there. John Hodulik: Got it. Thank you, guys. Lowell Singer: John, thanks for the question. Operator, next question please. Operator: Our next question comes from Jessica Reif Ehrlich with Bank of America Securities. Jessica Reif Ehrlich: Thank you. Given the viewership of Super Bowl, this year on CBS was down and it's fairly low for the last 10 years and streaming was up a lot. Can you talk about how you think about that in light of ESPN+? Like how does that factor into your conversations with the NFL? And then maybe kind of related, but how much of a factor is sports betting in these conversations? And in general how will you leverage both ESPN and ABC to capitalize on the growing legalization and adoption of sports betting. And then just back to Parks for one second, can you talk about how attendance relates to capacity? I mean you only add capacity a few days a year. So is there any way you can frame that relationship. If you allow 35% capacity is that I don't know 70% of attendance? Lowell Singer: Okay. So Jessica I'm going to let Bob take the sports question and maybe Christine will start with the Parks question. But Bob I'll turn it over to you. Bob Chapek: Okay. So I'll take the sports. ESPN is always a consideration whenever we look at rights going forward. In terms of the Super Bowl being down and as we're going into rights conversations with them that's obviously, something we're considering but more important than any one Super Bowl we're looking at the long-term trends of sports viewership, the MVPD universe and our own prospects of potentially a more true ESPN DTC service. So there's a lot of moving parts and a lot of elements in that mix but it's all taking into account the trends that we're seeing in the marketplace. What I will say is that we've had a long relationship with the NFL and if we have a deal, if there is a deal that will be accretive to shareholder value, we will certainly entertain that and look at that. But our first filter will be whether it makes sense for our shareholder standpoint going forward. In terms of sports betting. As you probably know we already have some programming on ESPN around the subject of sports betting. It particularly is attractive to the younger, very passionate sports audience that we find. So it's an important piece of what we're doing. We've got relationships with DraftKings and Caesars. We've got sports links with -- sports betting links with both of those, not branded Disney or ESPN obviously. But branded through their own offerings. We've got a studio in Las Vegas with Caesars that we're working on. And we've also got a variety of different things that we're entertaining for the future. So sports betting we do realize the value in that. We've obviously got some bumpers in terms of our own brand and what we think our own elasticity is in terms of us participating in such endeavors. But we're highly interested in taking the relationships that we have with both parties and taking them to the next level if that makes sense. Christine McCarthy: Okay. Jessica. I'll address your question about capacity at the parks. You're absolutely right, there are days. Especially holiday periods where we have to shut our parks for additional entries. Those tend to be days that the park fills up quickly and we just can't accommodate more people. But that being said. We are currently operating at 35% of that full capacity. And the teams in the park, especially at Walt Disney World have really figured out a way to be as efficient as possible in operating the park that allows us to get up to that 35% and still maintain all of the protocols for social distancing for COVID. The -- I think you'll remember, when we started opening, we started at a level less than 35% but it was the -- as Bob has already mentioned, industrial engineering that we utilize and just moving people around. The other thing I'd say is, when you think about the parks, it's a combination of attendance and per caps when you're looking at revenue. As we've -- as I said in my comments and I think Bob's alluded to it on the Q&A that we've had really nice growth in per caps. It was double digits not only on a linked-quarter basis from fourth quarter to first quarter, but also double digits year-over-year. So when you think about per caps and the yield management we want to have people have a great time when they're in our parks. And when they have a good time, they tend to spend more money. So this is something that we're refining as we go along. Jessica Reif Ehrlich: Great. Thank you. Lowell Singer: Jessica thanks for the question. Operator, next question please. Operator: Our next question comes from Doug Mitchelson with Credit Suisse. Doug Mitchelson: Thanks so much. Good afternoon. So back to streaming, I think at your first Disney+ Analyst Day you indicated that you'd be launched to the full world by about the end of this fiscal year or calendar year. I think it was fiscal year. So I'm just curious, if the timing for rest of world launches for Disney+ and Disney+ Hotstar is on track to be completed over the next few quarters? And I'm also interested, if you have any comments on engagement for Disney+. And I'm thinking, just how customers that have been on the service a little bit longer do they still use the service as much as when they first joined? How was Mandalorian and WandaVision in terms of being watched in as many homes as you hoped? And I guess, a third piece of that would be any comments on cadence around the content slate going forward? I know, at the Analyst Day, you talked about getting to 100 shows a year, should we think about content continuing to ramp aggressively in the coming months or coming quarters? How should we think about that? Thank you. Lowell Singer: So, Bob why don't you take these -- the streaming rollout question? And then Christine maybe you could take the engagement question and Bob will go back to you on cadence of content cycle. Bob Chapek: Okay. Yes, we are still on schedule, where we will get to the great majority of our rollout markets by the end of the year. It's all green lights in terms of our launch not only in terms of preparation of the service itself and being able to handle it from a delivery standpoint, but also from a content curation standpoint both creation and acquisition again on the local content when we need that. As you know, we've got quite a slew of new content coming and great library of content, which really rounds out our offering and we'll add to that our local offerings in order to make it a fully robust offering for each particular market given the idiosyncrasies of what each market requires. So, it's all as planned. Christine McCarthy: So Doug on engagement, as we said at the Investor Day, with Disney+ originals along with the theatrical releases and the library titles, we'll be adding something new to the service every week. And in general, I would say, we are very pleased with the engagement overall, especially when we put something like WandaVision on the service. So once again, these -- any time we put a new piece of content on the engagement for people, who know what the schedule of releases is it's quite encouraging. So we believe we're going to reach that cadence of getting content on the service every week within the next few years. We've also set that target for 100-plus new titles per year. And that's across Disney Animation, Disney Live Action, Pixar, Marvel, Star Wars, Nat Geo. And of course, we'll continue to add more to our library as we go through time as well. Doug Mitchelson: Great. Thank you very much. Lowell Singer: Okay. Thanks, Christine. Operator, next question please. Operator: Our next question comes from Jason Bazinet with Citi. Jason Bazinet: Thanks. I just have a question on parks. Since the vaccine came out last year, the buy side has this soft expectation that anyone that saw a revenue downturn because of COVID will get back to 2019 revenues by 2022, once we have herd immunity and the vaccines distributed. And every once in a while, I read some article that suggests that social distancing will still have to be in place even when herd immunity is around and people will still have to wear masks. So, do you guys have any counsel or insight in terms of how you're thinking about sort of how the parks will operate by the time we get to 2022? And any reason, not to believe that we won't sort of get back to 2019 revenues assuming that the economy is fine and all that? Lowell Singer: Thanks Jason. I'm going to turn that over to Bob. Bob Chapek: Yes. I won't specifically comment on whether we anticipate getting to 2019 revenues by 2022, but I will tell you what our expectations are in terms of the state of the world by then. We have no doubt that when we reopen up in parks that were closed or increase the capacity that we'll have some level of social distancing and mask wearing for the remainder of this year. That's our expectation. But I believe that Dr. Fauci said earlier today that, he hopes that there's vaccines for everyone who wants them by April this year. If that happens that is a game changer. And that could accelerate our expectations and give people the confidence that they need to come back to the parks. Will there be some overlap until we know that we've hit herd immunity? Sure there will. But do we also believe that we'll be in the same state of 6-foot social distancing and mask wearing in '22? Absolutely not. Jason Bazinet: Thank you. Bob Chapek: Hey thanks Jason. Operator, next question please. Operator: Our next question comes from Brett Feldman with Goldman Sachs. Brett Feldman: Thanks for taking the question. So if I go back to the December Analyst Day, you had outlined an expectation that Disney+ would see peak operating losses in this fiscal year and achieve profitability by fiscal year '24. When we look at the DTC P&L in the quarter you just reported in your outlook, it seems like you're trending much better than that for this fiscal year. So I'm curious do we need to revisit any of this guidance either because of accounting changes related to the resegmentation or maybe just underlying operating trends that are perhaps better than you had expected? Thank you. Lowell Singer: Brett thank you for the question. I'm going to turn that one over to Christine. Christine McCarthy: Okay. Thanks Brett. You're absolutely right. Peak losses we expect in this fiscal year. We said at our Investor Day which wasn't too long ago that we expected to reach profitability in fiscal 2024. We're not going to change that at this point although we are very pleased with the results that we just announced. But we are also -- given the value of growing our sub base, we are continuing to invest in high-quality content. We believe that content is the single biggest driver to not only acquiring subs, but retaining them. We're also going to have some other cost drivers that we just have to factor into our timing for profitability and that includes marketing, technology, customer service and just other expenses of running a new business. So we're sticking to that 2024 -- fiscal 2024 profitability. But once again we're very pleased with where we are today. Brett Feldman: If you wouldn't mind if I guess ask a quick follow-up question. You've gotten the question about whether you see any churn risk around the rate adjustments that are going to be coming this year. Are you expecting maybe to spend a bit more around engagement or awareness or marketing or anything just to make sure that as you transition out of the launch phase and promotional period phases and into your first ever rate adjustment that your customer base feels connected with you and that you don't experience that speed bump? Christine McCarthy: We believe that keeping subscribers informed about what's on the service is extremely important. So the awareness that we'll create through targeted marketing and marketing of the brand will basically mitigate what we believe is a very reasonable price increase given the amount of content and the value to subscribers. Rob Chapek: Yes Christine if I can just jump in here as well. We believe that we've got a great price-value relationship. I mean think about it from a Star Wars franchise, we moved from Mando 2 to Boba Fett later on this year to Mandalorian 3. And on a Marvel standpoint we go from WandaVision to Falcon and the Winter Soldier and to Loki. So I think the best insulation we've got is to keep the price-value relationship very high and there's no better way to do it than powerhouse franchises cranking out regular new releases on a monthly basis. Thank you. Lowell Singer: Operator we have time for one more question. Operator: This question comes from the line of Michael Morris with Guggenheim. Michael Morris: Thank you, guys. Good afternoon. A couple of questions on streaming. First, I want to ask you about Hulu, the SVOD service on Hulu. Hoping you can maybe share a little bit about the dynamic that's going on there, what the mix of sort of ad-supported versus ad-free subscriber base looks like. And there are a number of these now free ad-supported streaming services that have been growing and being more aggressively populated. I'm curious, how you see that competitive dynamic playing out? And I want to ask one question about sports. Bob, you mentioned the MegaCast approach to a couple of your big events. And I'm curious, as you look at your ability to provide that, what's the economic benefit to you? Do you -- is this primarily about putting it in front of more people, and therefore being able to monetize better? Or, is there an element of your ability to deliver a MegaCast, when you were negotiating for content rights, sports rights, with the leagues or teams, the owners there that you have a somewhat stronger negotiating position relative to your peers? Thank you. Lowell Singer: Okay Mike. It's good to hear from you. I'm going to let, Christine take the Hulu SVOD question. And then, I'll ask Bob to address the MegaCast question. Christine McCarthy: Hi, Mike. So on Hulu SVOD, when you look at the relative mix of ad-supported versus ad-free more of the subscribers are in the ad-free -- ad-supported. And that is where we have seen the really nice growth of our addressable advertising. So, that -- we're very comfortable and we actually -- we like the mix that we have, but it is more ad-supported, so we enjoy that relative increase of advertising. But it's pretty much been the track record that Hulu has of having that relationship of ad-supported versus ad-free has been relatively consistent, over their 10-year tenure. Bob Chapek: Yes. And on a multicast question, I think it's both, both elements. So I think there's a consumer benefit to the fact that nobody else, could do what ESPN does in terms of the multicast. And I think we've proven that in several different ways, over the last few months with big football events being broadcast. But I think there's also an element that, that then, is obvious not only to us and obvious to our consumers, but obvious to our prospective partners, as we go into negotiations of new deals. I think there's probably a, mentality that well the more times we divide this up, the better off we're going to be, from the prospective rights owners. And I think what we're doing is throwing a wrench into that thinking. And suggesting that, maybe by taking a consumer-first approach and saying, boy, consumer choice is really a good thing for everybody, let's go ahead and maximize the number of touch points we have, not only do we get a benefit from our subscriber base for those folks that have ESPN, but I think it's also very apparent to the leagues who hold the rights. Michael Morris: Great. Thank you, Bob. Lowell Singer: Mike, thank you. And thanks again everyone for joining us today. Note that a reconciliation of non-GAAP measures that were referred to on this call, to equivalent 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, expectations, beliefs or business prospects 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 number of risks and uncertainties, and actual results may differ materially, from the results expressed or implied in light of a variety of factors including factors contained in our annual report on Form 10-K, quarterly reports on Form 10-Q and in our other filings with the Securities and Exchange Commission. Thanks again for joining us today. And I wish everyone a very good afternoon. Bye-bye. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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.
