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Wednesday, February 7, 2024

Disney’s Strong Earnings Report and Outlook

 by Ray Keating



February 7, 2024


Disney surprised the markets with a strong earnings report today, along with a boatload of announcements. Indeed, the first quarter 2024 earnings report was one to be appreciated by stockholders.

Let’s get to what I see as the key takeaways, and there are a good many.


First, diluted earnings per share (EPS) excluding certain items jumped by 23 percent versus the same period last year – from $0.99 to a $1.22. For good measure, Disney offered some rare earnings guidance, projecting that full year fiscal 2024 EPS excluding certain items would increase by at least 20 percent versus 2023, to approximately $4.60.


Second, the company announced a 50 percent increase in its semi-annual dividend to $0.45 per share, which will be distributed in July.


Third, Disney also announced a stock buyback of $3 billion during the current fiscal year, with further buybacks seemingly slated for the future.


Fourth, the company was bullish on its cost savings and efficiency undertakings, noting that it would hit or exceed the previously announced $7.5 billion cost savings for the year.


Fifth, the company confirmed, once more, that it was on track to arrive at streaming profitability by the end of the current fiscal year. CFO Hugh Johnston pointed out that the objective on the streaming front is to achieve double-digit margins. According to Johnston, the path to such levels of profitability lies with growing subscriptions via paid sharing (which got a good deal of attention), lower churn, and international growth, as well as pricing and assorted efficiencies. Iger noted that the company is “working toward” what Netflix has achieved. 


In terms of streaming subscriptions, Hulu saw subscribers increase by 1.2 million in the quarter. Meanwhile, as largely expected, Disney+ subscriptions decreased by 1.3 million, but Disney also projected Disney+ core subscribers to increase by 5.5 million to 6 million in the second quarter.


Sixth, Disney announced that it entered into a partnership with Epic Games, with a $1.5 billion equity investment in the gaming enterprise. This partnership will result in the creation of a Disney Universe existing alongside and interconnected with Epic’s Fortnite. Disney CEO Bob Iger noted the need for the company to tap into demographic trends regarding gaming, and the opportunity to leverage the company’s intellectual property (IP) accordingly. He also highlighted the opportunity in this Disney digital world to purchase digital goods and perhaps in the future physical goods.


Seventh, since Taylor Swift seems to be everywhere, Disney announced that her “Eras Tour” concert film will come exclusively to Disney+ on March 15, with additional content not in the original release.


Eighth, it was noted that 70 percent of the announced plan to invest $60 billion on parks over the coming decade will go to increased capacity, with every park location and the high seas being affected. Annual announcements are expected to come from the company each year starting in 2025.


Ninth, a full-slate ESPN standalone streaming option will be launched in August 2025 or the fall of that year. This ESPN streaming option will include all ESPN programming, and will integrate betting, e-commerce, stats and personalization. In addition, the previously announced streaming sports joint venture with Fox and Warner Bros. Discovery is scheduled to launch this fall.


Tenth, all parks were profitable in the quarter, with growth in international parks particularly strong. And it was repeated that the company is expecting to “turbocharge growth” in the parks. The cruise line got notable attention in terms of expanding opportunities. It was noted in the earnings report: “At Experiences, we generated all-time records in revenue, operating income, and operating margin in the first quarter…” As for key sources of profitability on the Experiences front for the quarter, four were highlighted: Shanghai Disneyland, Hong Kong Disneyland, the Disney cruise line, and the latest Spider-Man video game.


Eleventh, on the movies and franchise fronts, it was announced that the planned Moana television show was being transformed into a theatrically released movie, set for November of this year. Meanwhile, it’s hard to say if something should or should not be read into the fact that the only Star Wars movie specifically mentioned by Iger was the one featuring The Mandalorian and Grogu. For good measure, Iger noted the slowdown in production on the Marvel front, declaring that there would a “focus on stronger franchises” going forward. In addition, the forthcoming Kingdom of the Planet of the Apes movie received a fair amount of attention. It has a release date of May 10, 2024.

Iger’s assessment was summed up in a statement in the earnings report: “Just one year ago, we outlined an ambitious plan to return The Walt Disney Company to a period of sustained growth and shareholder value creation. Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences… Looking at the renewed strength of all of our businesses this quarter – from Sports, to Entertainment, to Experiences – we believe the stage is now set for significant growth and success, including ample opportunity to increase shareholder returns as our earnings and free cash flow continue to grow.”


Finally, regarding the activist investor challenges facing the company with the upcoming April 3 shareholder meeting, when asked about it on CNBC, Iger declared that those individuals didn’t understand the Disney business, nor the Disney brand. He also spoke of the company “acting with a sense of urgency,” and that “all of us are optimistic.” When it came to streaming, Johnston also used the word “urgency,” that is, there is an “urgency to get to a good sustainable business.”


Why all the “urgency” talk? That’s what happens when activist investors lurk heading into a shareholder meeting, and people have been focusing on the under-performance of your stock.


In after-hours trading, at the time of this writing, Disney’s stock price was up by more than six percent.




Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, the Alliance of Saint Michael novels, and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.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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