by Ray Keating
May 11, 2023
Well, investors aren’t seeing much magic in Disney at the moment.
At first glance, Disney’s earnings report released on May 10 based on the quarter ending April 1 was, at worst, mixed. Earnings per share came in as widely expected in the market, and revenue actually ran slightly ahead of where expectations were.
Also, the theme parks did very well, with the company’s Disney Parks, Experiences and Products segment posting a 17 percent increase in revenue compared to the same quarter last year, while the segment’s profits grew by 23 percent.
And Disney’s direct-to-consumer, or streaming, losses were narrower than expected, and were moving in the direction the company said they would. DTC revenues increased by 12 percent, and operating losses went from $0.9 billion to $0.7 billion.
But these general positives, so far, have been outweighed by negatives now, and concerns looking ahead.
For example, the number of Disney+ subscribers declined by four million (from 161.8 million at the end of 2022 to 157.8 million as of April 1, 2023). Of those losses, the domestic tally was -300,000. With the loss of cricket, a big chunk of the subscriber losses came in India. ESPN subscriptions were up slightly (24.9 million to 25.3 million) and Hulu subs inched up from 48.0 million to 48.2 million).
Also, Disney’s traditional television (linear) networks saw a seven percent decline in revenue and a 35 percent decline in operating income.
In addition, Disney is in the midst of negotiating the purchase of the remainder of Hulu from Comcast, and plans to merge Hulu content with Disney+. There’s a significant amount of uncertainty swirling around the ultimate impact this will have on Disney.
As for the parks, the look ahead was less robust compared to recent performance, given the possibility of a recession, with commensurate slowing of the job market, a likely post-Disney World 50th-anniversary attendance falloff, and the evaporation of a post-COVID surge. At the same time, cost pressures likely will persist, including, ironically, on the labor front.
And there is uncertainty tied to the company’s lawsuit against Florida Governor Ron DeSantis and his allies in Florida government related to Walt Disney World. To say that it’s unusual for a company to sue a governor and related entities – and a governor who wants to be president – would be a major understatement. At the same time, though, Governor DeSantis’ crusade against Disney is an unprecedented act as well, and Disney has a strong case that this is government targeting a particular company and limiting or denying the right to free speech.
Whether one agrees or disagrees with the position that Disney took on an education law in Florida, one cannot seriously argue with what Iger said, including: “This is about one thing and one thing only, and that's retaliating against us for taking a position about pending legislation. And we believe that in us taking that position, we are merely exercising our right to free speech… There's been a lot said about special districts and the arrangement that we had, I want to set the record straight on that too. There are about 2000 special districts in Florida.” In addition, Iger asked, “Does the state want us to invest more, employ more people and pay more taxes or not?”
As for what might lie ahead, Investor’s Business Daily reported the following: “For the rest of the year, consensus views see the Burbank, Calif.-based company's earnings turning higher and ending up 16% for the fiscal year and up 21% (calendar year) over 2022. Fiscal year revenue is expected to rise about 9%.”
It also must be remembered that Disney is in the mix of some serious restructuring, trimming jobs and costs. As Iger said, “From movies to television, to sports, news, and our theme parks, we continue to deliver for consumers, while establishing a more efficient, coordinated, and streamlined approach to our operations.”
Disney’s stock price closed at $101.14 on May 10, before the earnings release, and then dropped by $8.84, or 8.7 percent, per share, closing at $92.30 on May 11.
Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, and the Alliance of Saint Michael novels; and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at email@example.com.
The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?
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