by Ray Keating
Analysis
DisneyBizJournal.com
November 8, 2019
After the market closed on November 7, The Walt Disney Company presented its earnings report for its fourth quarter and fiscal year ended on September 28, 2019. The big takeaway was an increase in revenue, along with an increase in expenses largely related to its forthcoming Disney+ streaming service.
Consider 6 key takeaways from the Disney report:
1. Streaming Focus. CEO Bob Iger made quite clear, once again, that streaming is the company’s major emphasis looking ahead: “We’ve spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re excited for the launch of Disney+ on November 12.”
2. Revenue and Earnings. Total revenues for the fourth quarter grew by 34 percent compared to the same quarter last year, and were up by 17 percent for the entire fiscal year. Meanwhile, earnings per share in the fourth quarter, excluding certain items, declined 28 percent to $1.07. However, that beat market expectations.
3. Media Networks Growth. Fourth quarter revenue increased by 22 percent in its media networks division, which includes ESPN. Operating income was off 3 percent, however.
4. Streaming Outlook. Iger served up assorted information on the company’s three streaming services.
For example, Iger noted: “I'm pleased to announce that as of today, ESPN Plus has over 3.5 million paid subscribers...”
He also noted the role that FX will play going forward with Hulu: “FX on Hulu will include all seasons and more than 40 FX series and will offer episodes of current and new FX series immediately after the air on the linear network. Additionally, FX will produce original series exclusively for FX on Hulu, starting with four new series in 2020; Devs from Alex Garland, Mrs. America starring Cate Blanchett, A Teacher starring Kate Mara, and The Old Man starring Jeff Bridges and John Lithgow. This is a great way to expand the FX brand and an important step for Hulu as it adds original content to compete more aggressively with new and legacy DTC platforms. The FX presence on Hulu combined with original production from our ABC and Fox Television studios and our Fox Movie studios including Searchlight will greatly enhance Hulu's consumer proposition.”
As for Disney+, Iger noted: “At launch, Disney Plus users will have immediate access to more than 500 movies including all of our beloved titles and more than 7,500 episodes of library television content, including 30 seasons of Simpsons. By year five, this growing collection will include more than 620 movies and more than 10,000 television episodes along with countless shorts and features. As planned, we first concede this service all creative engines across our Company including the teams of Disney, Pixar, Marvel, Lucasfilm, National Geographic, Disney Channel, and Walt Disney Television studios are focused on creating compelling original content for Disney Plus.”
He added: “At launch, will offer 10 original movies, specials and series exclusive to the platform, including the Mandalorian. The first live-action Star Wars series is unlike anything audiences seen before on any platform and it's a strong indication of the quality in the storytelling that will define Disney Plus. We recently screened a significant portion of the first episode of the Mandalorian compressed and the extremely positive reaction is driving tremendous buzz around this extraordinary series ahead of its debut on Disney Plus. Within a year of launch, the amount of original content on Disney Plus will increase to more than 45 series, specials and movies and will expand to more than 60 original projects per year by year-five.”
5. Parks Performance. Fourth quarter revenue rose by 8 percent in its parks, experiences and products division. Operating income grew by 17 percent.
Christine Mary McCarthy, Senior Executive Vice President & Chief Financial Officer, reported, “Operating income at domestic parks and experiences was up 13% driven by growth at Disneyland on higher guest spending and an increase at Disney Vacation Club.” She also noted, “Attendance at our domestic parks was comparable to the fourth quarter last year, and reflects the impact of Hurricane Dorian, which we estimate adversely impacted attendance growth by about 1 percentage point. Per capita guest spending was up 5% on higher admissions, merchandise and food and beverage spending. Per room spending at our domestic hotels was up 2%, and occupancy of 85% with comparable to the fourth quarter last year.”
Regarding Disneyland, Disney reported: “Growth at Disneyland Resort was primarily due to higher guest spending, partially offset by expenses associated with Star Wars: Galaxy’s Edge, which opened on May 31, and, to a lesser extent, lower attendance. Guest spending growth was primarily due to increases in average ticket prices and higher food, beverage and merchandise spending.”
As for Walt Disney World, it was noted: “Results at Walt Disney World Resort were comparable to the prior-year quarter, despite the adverse impact of Hurricane Dorian in the current quarter. Increases in guest spending and, to a lesser extent, occupied room nights and attendance were offset by higher costs. Higher costs were driven by costs associated with Star Wars: Galaxy’s Edge, which opened on August 29, and cost inflation. Guest spending growth was primarily due to increased food, beverage and merchandise spending and higher average ticket prices.”
Also, park revenues were negatively affected for Hong Kong Disneyland due to the unrest and protests in Hong Kong.
Looking ahead, McCarthy said, “On the domestic front, we expect Q1 revenue growth at our domestic parks and resorts to benefit from a full quarter of Star Wars Galaxy's Edge at Walt Disney World and the December opening of Rise of the Resistance at Walt Disney World. However, the revenue growth will be partially offset by meaningful cost growth driven primarily by operational expenses associated with Galaxy's Edge and higher labor expense due to the impact of higher wages under new collective bargaining agreements. So far this quarter, domestic resort reservations are comparable to prior year. We believe some guests are deferring to Disney Land and Walt Disney World until the complete opening of Galaxy's Edge at those respective locations. I'll note that awareness and intend to visit strong; booked rates at our domestic hotels are currently pacing up 5% versus this time last year.”
6. Studio Growth. Fourth quarter revenues jumped by 52 percent for studio entertainment. Operating income moved up by 79 percent. The Lion King, Toy Story 4 and Aladdin contributed to revenue and operating income increases.
Right now, everything points to this coming Tuesday, November 12, and the big launch of Disney+. That’s where so much of the future of the company lies.
Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels. He can be contacted at raykeating@keatingreports.com.
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