The Walt Disney Company (DIS) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Walt Disney Company's Second Quarter 2021 Financial Results Conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Lowell Singer, Senior Vice President of Investor Relations. Please go ahead. Lowell Singer: Good afternoon, and welcome to The Walt Disney Company's second quarter 2021 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www.disney.com/investors. Bob Chapek: Thanks, Lowell, and good afternoon, everyone. It's been a busy few months and we've been pleased to see more encouraging signs of recovery across our company. We ended the second fiscal quarter with adjusted EPS of 32% to $0.79, compared to $0.60 last year. And since then, we've continued to make progress across our businesses as we remain laser focused on our ongoing recovery, while also fueling long-term growth. Our strategic focus continues in three key areas. First is direct-to-consumer. We've successfully launched our streaming offerings, Disney+ and Star in a number of markets internationally. And we've been pleased with the growth and engagement in those markets today. Our steady cadence of new high-quality branded content, along with our robust collection of library titles allows us to continually attract new subscribers and retain existing ones. At the same time, we are also closely monitoring the recovery of theatrical exhibition, as consumers begin to return to theatres, and I'll talk more about the specifics later. Finally, we are focused on the ongoing recovery of our parks business and the resumption of Disney Cruise Line. There have been some encouraging developments in recent months, particularly with the ongoing rollout of the vaccine, and the gradual lifting of government mandated restrictions. And through this time, we've taken advantage of the opportunity to make improvements to our operating procedures to enhance the guest experience through the use of technology innovations, new ticketing strategies, and other offerings. We are especially excited that after being closed for 412 days, we welcomed our first guests back to Disneyland 2 weeks ago. And the response has been overwhelmingly positive. Bob and I stood on Main Street USA on opening day, and it was so wonderful to see the joy on our cast and guests' faces and feel the excitement in the air. It's been fantastic to see cast members back at work. Most recently at Disneyland, we were able to quickly recall more than 10,000 furloughed cast and retrain them to be able to operate to the State of California's new health and safety requirements. Christine McCarthy: Thank you, Bob, and good afternoon, everyone. Excluding certain items, diluted earnings per share for the second fiscal quarter increased 32% versus the prior year to $0.79 per share. We are beginning to see progress in many of our businesses after more than a year of adverse impacts from the pandemic. While we are not out of the woods yet, we are pleased with our results this quarter at both our DMED and DPEP businesses. I will walk through our results by segments, starting with Media and Entertainment Distribution. Operating income at the segment increased by 74% in the second quarter versus the prior year, due to higher results across all of the segments lines of business. At Linear Networks, the increase was driven by growth at both our domestic and international channels. At domestic channels, both cable and broadcasting operating income increased versus the prior year. Higher results at cable were driven by lower programming and production costs and higher affiliate revenue partially offset by lower advertising revenue. ESPN's results were in line with the guidance we gave last quarter, and ESPN was the most significant contributor to cables growth this quarter. The decrease in programming and production costs was largely due to the timing of the College Football Playoffs. As we mentioned last quarter, fiscal Q2 included only one CFP Bowl game, the National Championship compared to four in the prior year quarter, three CFP Bowl games and the national championship game. Cable programming and production costs also benefited in the quarter from lower production costs for other live sporting events and lower programming costs at Freeform. Lower advertising revenue at cable was primarily due to lower average viewership. At ESPN, domestic advertising revenue decreased significantly in the quarter driven by lower ratings for key programming, in addition to the timing of the College Football Playoffs. Lowell Singer: Okay. Thanks, Christine. And as we transition to the Q&A, let me note once again that since we are not all physically together this afternoon, I will do my best to moderate by directing your questions to the appropriate executive. And with that, operator, we are ready for the first question. Operator: Our first question comes from Ben Swinburne with Morgan Stanley. Your line is open. Ben Swinburne: Thanks. Good afternoon. Maybe just starting on the direct-to-consumer side, for -- maybe for Bob, could you talk a little bit about how the price increases have landed relative to your expectations, both internationally with Star, but also in the U.S kind of the impact on churn and how that might inform your decision-making process going forward on price? And then I just wanted to ask, I think you guys generated maybe $700 million or so of free cash flow in the quarter. Normally, we don't talk a lot about quarterly free cash flow. But it's been a while, I’m just wondering, Christine, if you think at this point, we're back in free cash flow positive mode going forward and expect to generate free cash flow for the year. Thank you both. Lowell Singer: Okay, Ben. Thanks for the questions. Bob, you will take the first one on price response, and then Christine will take the cash flow question. Bob Chapek: All right. Of course, these were our first price increase since we launched. I have to say that we're extremely pleased with how the market reacted to both. In the U.S., we've not observed any significantly higher churn rate since the price increased in EMEA. As we added Star as a six brand title, we've actually seen an improvement in our churn rate. So we seem to be fairly resilient to those price increases. And as such, I think it makes us feel relatively bullish going forward that we still offer a tremendous price value relationship across the world for Disney+. Christine McCarthy: Hi, Ben, and thanks for the free cash flow question. We don't usually get those. But I would like to comment on it because it's something that we're tracking not only this year versus last year, we look at it actually weekly. But I'm also looking at it versus fiscal '19, which I consider a more normalized year. I would say that the upside that we're really seeing and we're quite pleased with it is since we've reopened Walt Disney World, and we really don't have the impact of Disney Land yet, but we're seeing as I mentioned, a strong per cap growth in the parks that's flowing through the parks cash numbers, and we're also seeing good strong cash flow from our direct-to-consumer businesses. So those two elements are kind of upside to what we had planned for. And I would also say that the -- there is some choppiness year-over-year, because of some of the shifts and sports rights expense timing from last year to this year. But we expect that to be more normalized this year as we get through the year. But we're looking at a more favorable free cash flow than we did when we started off the year. Ben Swinburne: Thanks a lot. Lowell Singer: Ben, thank you. Operator, next question please. Operator: Our next question comes from Alexia Quadrani with JPMorgan. Your line is open. Alexia Quadrani: Thank you. One on streaming as well and then one on the parks. How should we think about really Disney+ subscriber growth going forward? I know you gave a lot of great color in terms of how to think about the cadence for the balance of the year. And details on the growth we've seen so far -- on the impressive growth we've seen so far. But I'm wondering, if you look at what you see internally as major drivers for the step up, or step up until you get to your long-term target, is it really around certain content drops? Is it around eventually moving more into Eastern Europe or other markets in Asia? I guess what do you guys see is sort of the main drivers for sub growth? And then just a follow-up, if I can, on the parks. Any color you can provide on how we should think or how you're thinking about when it's okay to start raising capacity, attendance capacity, particularly at Walt Disney World. Lowell Singer: Okay, Alexia. Thanks for both questions. Bob, do you want to take both of those? Bob Chapek: Yes, I'll take them both. So on the first one, in terms of the drivers for sub growth going forward, we really see four different elements. First of all, is our content slate. As you know, we're spending a lot of money across our variety of franchises, in order to create the content that's going to keep consumers coming back and keep not only our sub number growing, but also our engagement growing across all of our platforms. So the first one is content slate. The second one is our general entertainment international growth driven by our Star brand. And we think that's going to continue to fuel growth for international territories as well as Disney+. The third one is continued market expansion in markets where Disney+ has not yet been launched. And as you see, we're announcing in Malaysia today as June 1, and Thailand as June 30. So market expansion will continue to be a piece of it. But one thing that continues to impress us is the opportunity to have the bundle in the U.S be even larger. All the metrics that we see, all the performance factors are extraordinarily positive for that. So I would say those are the four components that continue to drive us and our bullishness in terms of our ability to continue to project that we're going to hit between 230 million and 260 million subs by the end of '24. In terms of the parks, and when we're going to sort of be able to raise our capacity limits, we've actually already started that, given the guidance that just came today from the CDC, and earlier guidance that we got from the Governor of Florida, we've already started to increase our capacities. Obviously, today's guidance that we got from the CDC in terms of those that were vaccinated do not necessarily need to wear masks anymore, both outdoors and indoors, is very big news for us. Particularly, if anybody's been in Florida in the middle of summer with a mask on. That could be quite daunting. So we think that's going to make for an even more pleasant experience. And we believe that as we're now bringing back a lot of people back to work, that it's going to be an even bigger catalyst for growth in attendance. And we've been quite pleased to date. So I think you're going to see an immediate increase in the number of folks that were able to admit into our parks through our reservation systems that we recently implemented. So we're very, very excited about that. Alexia Quadrani: Thank you. Operator: Thank you. Our next question comes from Michael Nathanson with MoffettNathanson. Your line is open. Michael Nathanson: Thanks. Well, I have two. One is on the gross addition side of Disney+. We heard from Netflix that may have been a pull forward and maybe perhaps the reopening is impacted gross additions. Can you talk a bit about what you're seeing in some of the more mature or I guess develop markets on the gross addition side? And then you guys have consistently beat us OI profits, or lack of losses, I'd say, on DTC. Which of the platforms is providing the biggest surprise? And does it make you rethink maybe some of the guidance you gave around breakeven, given how strong the year has been so far on limitation of losses? Thanks. Lowell Singer: Bob, why don't you start and then we'll go over to Christine. Bob Chapek: Okay, I'll take the first one. In terms of the additions, we've really seen it across our geographies. When you look at it from a mature versus new, every single market that we've launched in has exceeded our expectations so far in terms of the new. But in terms of mature, keep in mind that we added 30 million households in the first 6 months of the fiscal year, which is in line with our expectations, and domestic continues to contribute to that. The addition of the Marvel content and not only the Marvel content, but how strong it's been and the cadence of additions, and as you know, we'll soon be announcing our -- soon be launching Loki. That is a tremendous catalyst for growth for us. And in the future, as we get to more new content and serial content coming from Star Wars, we're really, really encouraged by what that's going to mean in terms of engagement, because as you know, engagement is sort of the precursor for net sub adds. And so we're very pleased with both our domestic as well as our, let's call, more mature markets, those that we've been in the marketplace for at least a year, but also our new markets as well. Christine McCarthy: Okay. And I'll take the second part of your question, Michael, and nice to hear your voice. Look, the biggest drivers for direct-to-consumer were coming out of Hulu and Disney+. They're a little bit different. Disney+, we saw some lower content costs and that was due to some lower allocated costs for some of our own titles compared to what we had expected. And at Hulu, there was also some lower content costs, but for a different reason. It was from their third-party content that is coming -- that were delayed because of some COVID issues. So content coming in is not coming in as quickly as that they had thought, but the most important driver for Hulu is the addressable advertising strength. That continues to be a real upside. And it's going strong, and we expect that to continue. There's real demand for that addressable advertising. Michael Nathanson: Thanks, Christine. Lowell Singer: Okay. Michael … Michael Nathanson: My other question was -- sorry, Lowell. Thanks. Lowell Singer: Go ahead. Go ahead, Michael. Michael Nathanson: And does that make you rethink your guidance on breakeven timelines, given how strong Hulu has been? Christine McCarthy: No. Michael Nathanson: No. Christine McCarthy: The only guidance that we have reaffirmed was the 2024 total Disney+ global subs. Bob mentioned it, I mentioned it, that 230 million to 260 million. All the other guidance we have not reaffirmed or changed at this point. We're still going through our long-term planning cycle. So we're not making any changes now. Michael Nathanson: Okay. Thank you, Christine. Operator: Thank you. Our next question comes from Jessica Reif Ehrlich with BofA Securities. Your line is open. Jessica Reif Ehrlich: Thanks. I’ve just the same, parks and DTC. Some of the pictures from the parks look like it's totally full even with this reduced capacity. So now with capacity increasing, how does that relate to like kind of normal attendance? Even though you don't have international visitors, it still feels like from what we can see that it's fairly full. And you said demand strong. I just wonder if you can comment on that. And also, any update you can give us given the strong demand, how that overlays with some of the things you've talked about in the past and didn't really discuss today, but the yield management, some of the cost changes you've put in place. And then, sorry for such a longwinded question, but given the tight labor market, are there any issues that you're seeing there either on the cost side or in hiring? And then finally on DTC, I mean, this lower net adds in second half, sounds like it's coming from India, which of course is understandable, given IPL as well as COVID. But there's also likely to be an impact on ARPU, a positive impact on ARPU and I'm just wondering, how does it all translate into the operating results OI? Lowell Singer: Thanks, Jessica. So, Bob, why don't you take the parks questions? And then if you want to start on the Disney+ question, Christine, may want to jump in at the end. Bob Chapek: Okay. So in terms of the parks demand domestically, our intent to visit at Walt Disney World is growing and is actually already flat with '19, which is obviously our last pre-COVID year. So that's really good news for us. And since we've opened up Disneyland Resort, intent to visit is actually growing as well. So we're thrilled with the guests response to that. So as capacity limits increased, we don't think we're going to have any problem at all, sort of increasing our attendance to match that capacity, that is not something that keeps any of us up at night. In terms of our yield management, as you know, we've been practicing yield management for a while. And it's really become an art form with this extraordinarily limited capacities that we've been operating yet. But you've seen the margins very healthy, our yield is growing up. From a very healthy standpoint, consumers are spending more, and we're doing it under some tremendous cost management parameters, because everything's become automated. And so we've sort of got the perfect positive storm, if you will, where we've got plenty of demand, we've got really great yield management gains and the cost management at the same time. And in terms of labor, we've had about 80% of our cast members return that we've asked to return. And obviously one of the gating factors for us to continue to increase capacity is to continue to get a more and more cast members back, it thrills us to be able to do that. But we've had no problems whatsoever in terms of trying to get our cast to come back and make some magic for our guests. Lowell Singer: Christine? I think you’re muted. Christine McCarthy: I'm going to talk about -- hi, Jessica. I'm going to talk about direct-to-consumer and the slower net adds expected for the second half of the year. That is, in fact the case. And it is largely due to the COVID related suspension of the IPO. And also that decision that we made to move the Star Plus Latin America launch into the fourth quarter. And once again, we did that because of the strength of the sports calendar that we would have upon launch. The other thing that's going to happen here is with the absence of the IPL games in India, that will also have an impact on advertising revenue. So you could see a decrease in the ARPU and the subs in India, if that plays out, like we just said. But the other thing is we did take price increases for domestic U.S as well as EMEA for Disney+, so our overall ARPU could benefit. So we just took the price increase in the U.S at the end of March. And we'll see how that plays out in our ARPU in the upcoming quarters. Jessica Reif Ehrlich: Thank you. Lowell Singer: Thank you, Jessica. Operator, next question please. Operator: Our next question comes from Doug Mitchelson with Credit Suisse. Your line is open. Doug Mitchelson: Thanks so much. Thanks for taking the question. So, Lowell, I would say sort of two areas of focus. The first you started touching on it a bit with the last series of questions, but I think one of the core thesis is that coming out of the pandemic, it's potential that the parks at Disney are more profitable than pre-pandemic. And you've talked about some of those drivers, one of them perhaps, when the parks returned to 100% of capacity, is that capacity different than it was pre-pandemic? Is it bigger? Are you smarter on pricing? Are margins structurally higher? So, one, I was just curious if you agree with that thesis at the parks could end up being more profitable coming out of the pandemic than it was going in? And then the second area, the NFL deal was obviously super interesting. And I'm curious under what circumstances would you consider doing what some peers are doing, simulcasting your football games, Friday Night football games from either ESPN or ABC onto ESPN+? Thank you. Lowell Singer: Doug, thank you. Thanks for the questions. I will turn both of them over to Bob. Bob Chapek: Okay. In terms of park, and in terms of the relative profitability, as you know, we have -- there's a lot of negative impacts, of course, with COVID. But one of the things that it gave us a chance to do as we were forced to stop operation was to completely reexamine how we priced and programmed our tickets. And as you all know, we ended our current annual pass program at Disneyland. And that gives us a chance to sort of create a modern version of a park loyalty program and affinity program that isn't necessarily governed by legacy. And as you know the net contribution back to the company varies tremendously, and was one of the levers that we use to grow yield over the past several years, depending on what type of ticketing structure a particular guest came in. With the ability now for us to sort of completely reconsider how we go about our loyalty programs and our frequent visitor programs, we have the chance to make even more advancements, not only in terms of the guest experience and make sure that guests have a tremendous experience, no matter what day of the year they come, whether it's a high demand day, or a relatively low demand day, but also the ability to increase our per caps and our yields. And we've already seen tremendous growth in those as you're seeing over the last couple quarters. But I don't think we've even scratched the surface in terms of what we can do when we finally restart with some of our programs, in terms of making sure again, that not only do we improve the guest experience, but at the same time get an adequate return to our shareholders for the type of experience that we do give to our guests. So very positive on those factors. In terms of the ability to simulcast with ESPN+ and ESPN and ABC, that's actually been envisioned in the deals and we've gotten a lot of flexibility, not only in terms of our ability to take our programming to our DTC platforms, and things like Hulu and ABC. So that's actually been envisioned and we plan on being fairly aggressive in that way. I think that one of the advantages of The Walt Disney Company in sports is that we've got so many ways to reach our consumer base. And I think the league's understand that and we certainly do as well, and I think our guests do as well. Doug Mitchelson: Thank you. Lowell Singer: Thank you, Doug. Operator, next question please. Operator: Our next question comes from Kannan Venkateshwar with Barclays. Your line is open. Kannan Venkateshwar: Thank you. So a couple, if I could. I mean, firstly, I guess, Bob, when you look at the vision for sports streaming, you now have digital rights across all the major sports that you carry on ESPN. And you've made some hard choices on the other businesses when it comes to licensing, and studios and so on in order to pivot -- make a hard pivot for streaming. But that choice with respect to sports streaming feels like it's still a couple of years off in terms of pivoting ESPN as a business completely towards streaming. So could you just talk about the longer term vision now that your sports portfolios in place? How should we think about ESPN relative to ESPN+ and how you're thinking about the transition being accretive overall? And secondly, I guess, Christine, the guidance around the second half cadence for DTC subs. The IPL suspension, I guess could change. I think they're looking at other geographies to run the tournament. If that was to happen, would the outlook change for subscriber growth in the second half? Thanks. Lowell Singer: Okay. Kannan, thanks. Bob, I'll hand the sports question to you and then Christine, you can talk a little bit about IPL impact on subs. Bob Chapek: We've talked a lot about -- excuse me, we talked a lot about flexibility when it comes to pivoting between linear and more traditional legacy platforms, and our digital rights direct-to-consumer platforms. And the reason we want that flexibility is because we know things are going to change. And as we've always said, when the right time comes for us to make a step function increase, as we've done with our entertainment platforms to our sports platforms and it's accretive to our shareholder proposition, we'll go ahead and do that. Our longer term vision is to parallel path both ESPN and ESPN+, but if there's any indication of where we're going with this, I think our recent deals and the flexibility that we've negotiated in to go to these direct-to-consumer platforms and specifically ESPN+ or whatever follows ESPN+ in terms of the direct-to-consumer platform, I think that's 100% indicative of our bullishness of not only our capability of doing that, but the viability of doing that. Christine McCarthy: Hi, Kannan. And your question around if they move the IPL. About half of the 60 IPL matches that were expected to be played this season have already taken place. So you're looking at the back half 30 games to be played. So sure if they were able to successfully relocate the tournament, we would hopefully see an impact, especially on advertising. And so there would be a positive what we're expecting. It would be better than if there were no rescheduled. The big issue is going to be when in the quarter and if it overlaps into Q4, or if it goes into the first fiscal quarter, which starts for us and the beginning of October. So it would have a -- it would have an impact on it, it just depends on when it would come in. So let's hope they are able to relocate it. Kannan Venkateshwar: Got it. Thank you, both. Lowell Singer: Hey, Kannan, thanks for the questions. Operator, next question. Operator: Our next question comes from John Hodulik with UBS. Your line is open. John Hodulik: Great. Thank you, guys. Maybe keeping with the sports rights question, it does look like you guys are sort of bulking up on sports rights. Would you say you still have demand for additional rights, if the economics made sense and I think thinking sort of Sunday Ticket or the EPL? Or is there sort of a level that you get to in terms of spending where you feel you need to cut it off? And then given all the rights and the digital platform, are -- is the sports gambling become a bigger opportunity for the company and something that you expect to go deeper into? Thanks. Lowell Singer: John, thank you. Bob, do you want to take those? Bob Chapek: Yes, thank you. In terms of the sports rights, we've just recently closed MLB, La Liga, NFL, NHL. So we certainly as you have suggested have a full complement of sports to please almost anybody. And you take that in addition to the NBA rights that we have and yes, we're -- we've got a full house there. In terms of our appetite for going further, in terms of what's really left, there's not much, you mentioned Sunday ticket and that's something that we're in conversations with and we're considering and we're thinking about it. Obviously, it's an attractive property, but we'll only do it just like our other rights, if it is something that adds shareholder value. And that's the filter that we'll continue to look for. And we're really happy with, frankly, the deals that we've got in terms of representing things that are accretive to our shareholders so far. And we'll take that same approach going forward. In terms of the gambling opportunity, as you know, we stuck our toe in this water in the last couple of years in terms of sports links with a few of the players out there. And I think going forward, we see this as an opportunity. We seized an opportunity, we know that it represents very little risk to the company and very little risk to ESPN. As a matter of fact, it's actually -- it builds the brand equity from the research that we've had in terms of some of the younger audience that follow sports because it's such an integral part of the experience. And so we think it's actually a growth vehicle for us, but we'll walk into it carefully and monitor it carefully, but we have a greater appetite to do more and more in that area. John Hodulik: Okay. Thanks, Bob. Lowell Singer: Okay. Thanks, John. Operator, we have time for one more question today. Operator: We have a question from Brett Feldman with Goldman Sachs. Your line is open. Brett Feldman: Yes. Thanks for taking the question. You mentioned during your prepared remarks, the three primary ways you look to release theatrical content, whether it's in the theatres or on your direct-to-consumer platforms. And one of those methods is a simultaneous release in the theatres and Premier Access. And I can understand during COVID, when it was very unlikely that people would be in theatres, but that was a reasonably easy call. It seems like this could be a little trickier to make a decision around when a film has the right characteristics for that type of release model going forward. So I was hoping you can maybe give us an insight in terms of what you're weighing when you make that decision. And in particular, with your big franchises, for example, you'll be doing this with Black Widow. What gives you conviction that you can build and nurture and create a lot of enthusiasm around those mega franchises without at least some limited theatrical window. Thank you. Lowell Singer: Thanks, Brett. Bob, do you want to take that? Bob Chapek: Yes, I'm going to take the second one first. If there's any marker in terms of our ability to continue to build franchises, we know theatrical is a proven way to do that. But our merchandise sales on Mandalorian that never had a theatrical release is certainly one extraordinary marker in terms of the fact that while theatrical continues to be a great way for us to build franchises, our first big data point using our Disney+ platform to sell merchandise has been extraordinarily successful for us as well. In terms of the Premier Access, you're absolutely right. As we get into a situation where we're trying to monitor our consumers ready to go back into theatres, of course, 90%, let's say of the domestic marketplace is open right now. And we're encouraged in terms of polling in terms of that growing going forward. But if you look at last weekend's box office for an example, and you compare it versus an average over the last 3 years of pre-COVID box office, it was 85% below domestically and 63% below -- 67% below internationally. So we know the markets not quite there yet. So the Disney Premier Access strategy, one of the things that gives us right now, and we're grateful for this is the ability to go ahead and try to release things into the market and try to reprime the pump, if you will. But at the same time, know that for those consumers that are a little leery still about going into a packed theatre, that they can go ahead and watch it in the safety and convenience of their home. In terms of going beyond this fiscal year, we've not announced exactly what our strategy is going to be in terms of which titles will be theatrical plus Disney Premier Access, which ones will be direct to Disney+, or which ones will go into theatres. But know that we'll continue to watch the evolution of the recovery of the theatrical marketplace. And we'll use that flexibility to make the right call at the right time. But right now, we've only called those films that are in this fiscal year because of the relatively fluid nature of the recovery of exhibition. Brett Feldman: Thank you. Lowell Singer: Brett, thanks for the question. 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. This concludes today's call. I wish everyone a very pleasant good evening. Thanks. Operator: 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.
